Investors hammer tech stocks as Chinese AI model challenges Western dominance
Global technology stocks faced a significant sell-off on Monday, with industry giants like Nvidia and Oracle seeing their shares plummet. The trigger was the emergence of a low-cost Chinese artificial intelligence model from startup DeepSeek, casting doubts on Western companies' supremacy in the AI sector.
Last week, DeepSeek launched a free AI assistant that reportedly operates using less data at a fraction of the cost of existing models from established players. This development marks a potential turning point in the level of investment required for AI, shaking up the industry landscape.
Futures on the Nasdaq 100 slid almost four percent, hinting at the possibility of the index experiencing its most substantial daily decline since September 2022 if losses persist. The S&P 500 futures dropped two percent. In pre-market trading, shares of AI chipmaker Nvidia fell 10 percent, rival Oracle dropped eight percent, and AI data analytics company Palantir lost seven percent.
DeepSeek, which by Monday had surpassed U.S. competitor ChatGPT in Apple Store downloads, offers a viable and more affordable AI alternative. This raises questions about the sustainability of the hefty spending and investment on AI by Western companies, including Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled amid investor uncertainty.
\"We still don't know the details and nothing has been 100 percent confirmed regarding the claims,\" said Jon Withaar, a 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 this alleged $6 million number, this is very positive for productivity and AI end-users, as cost is obviously much lower meaning lower cost of access.\"
The hype around AI has fueled massive capital inflows into equity markets over the past 18 months, as investors bought into the technology, inflating company valuations and propelling stock markets to record highs.
'Sputnik Moment' for AI
Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment\" in a post on social media platform X (formerly Twitter) on Sunday, 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 said in a separate post.
In Europe, ASML Holding, which counts Taiwan's TSMC, Intel, and Samsung as customers, dropped almost 11 percent. In Japan, startup investor SoftBank Group slid over eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Big Tech firms have ramped up spending on developing AI capabilities, and optimism over the potential returns has driven stock valuations to soaring heights. Nvidia alone has risen by over 200 percent in about 18 months and trades at 56 times its earnings value, compared to a 53 percent rise in the Nasdaq, which trades at a multiple of 16 times its constituents' earnings, according to LSEG data.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, noted that the market is questioning the capital expenditure of major tech companies. \"The market is starting to reassess the sustainability of these high levels of investment,\" he said.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, commented, \"The idea that the most cutting-edge technologies in America—like Nvidia and ChatGPT—are the most superior globally, there's concern that this perspective might start to change.\"
He added, \"I think it might be a bit premature, but the market is reacting to the potential shift in the AI competitive landscape.\"
Reference(s):
DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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