Investors around the world are reeling as shares in major technology companies plummeted on Monday following the emergence of DeepSeek's groundbreaking artificial intelligence model. The Chinese startup unveiled a free assistant that operates with significantly less data and at a fraction of the cost of existing AI models, challenging the dominance of established Western tech giants.
DeepSeek's innovation has been hailed as a potential turning point in AI development, reducing the investment barrier for AI technology. The impact was immediate on financial markets, with futures on the Nasdaq 100 sliding nearly 4%, hinting at the possibility of the index experiencing its most substantial daily drop since September 2022. The S&P 500 futures also dropped by 2%.
Shares in prominent AI-related companies faced steep declines in pre-market trading. Nvidia, the leading AI chipmaker, saw its shares fall by 10%, Oracle dropped 8%, and AI data analytics firm Palantir lost 7%. The ripple effect extended from Tokyo to Amsterdam, with AI players globally experiencing a tumble in stock prices.
DeepSeek Overtakes Competitors
By Monday, DeepSeek had surpassed U.S. rival ChatGPT in Apple Store downloads, offering a viable and cost-effective AI alternative. This development has raised concerns about the sustainability of hefty investments by Western companies like Apple and Microsoft in AI technology.
\\"We still don't know the details and nothing has been 100% confirmed regarding the claims,\\" said Jon Withaar, senior portfolio manager at Pictet Asset Management. \\"But if there truly has been a breakthrough in the cost to train models from over $100 million to an alleged $6 million, this is very positive for productivity and AI end users, as cost is obviously much lower, meaning lower cost of access.\\"
Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \\"Sputnik moment,\\" referencing the Soviet Union's 1957 satellite launch that ignited the space race. \\"DeepSeek R1 is one of the most amazing and impressive breakthroughs I've ever seen—and as open source, a profound gift to the world,\\" he posted on social media platform X.
Market Reactions and Future Implications
The hype around AI has fueled massive capital inflows into equity markets over the past 18 months, inflating valuations and pushing stock markets to record highs. Companies like Nvidia have seen their stock prices soar—Nvidia alone has risen over 200% in about 18 months, trading at 56 times its earnings value.
However, the emergence of DeepSeek's low-cost model is prompting investors to question the capital expenditure strategies of major tech companies. \\"The market is questioning the capex spending of the major tech companies,\\" noted Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, expressed caution. \\"The idea that the most cutting-edge technologies in America are the most superior globally—there's concern that this perspective might start to change,\\" he said. \\"I think it might be a bit premature.\\"
The developments signal a potential shift in the global AI landscape, with the Chinese mainland's DeepSeek positioning itself as a formidable player. As the industry absorbs these changes, investors and tech companies alike are adjusting their strategies in response to this new competitive environment.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
