Global technology markets faced a seismic shift on Monday as investors hastily offloaded shares in major AI companies. This reaction came in the wake of the launch of a low-cost artificial intelligence model by Chinese startup DeepSeek, casting doubts on Western firms' dominance in the sector.
DeepSeek unveiled its free AI assistant last week, claiming it operates with less data at a fraction of the cost of existing models. This development has been touted as a potential turning point in AI investment, challenging the significant capital outlays traditionally associated with AI innovation.
The impact was immediate. Futures on the Nasdaq 100 plummeted nearly four percent, hinting at what could be the index's most substantial daily decline since September 2022 if the trend continues. The S&P 500 futures also dropped by two percent. Notably, shares in AI chipmaker Nvidia fell by 10 percent, Oracle dipped eight percent, and AI data analytics firm Palantir saw a seven percent decrease in pre-market trading.
DeepSeek's Rapid Ascent
By Monday, DeepSeek had surpassed U.S. rival ChatGPT in downloads on the Apple Store. The startup offers a cost-effective AI alternative, sparking discussions about the sustainability of current investment levels in AI by Western giants such as Apple and Microsoft.
From Tokyo to Amsterdam, shares of companies invested in AI experienced significant declines. \"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 an alleged $6 million, this is very positive for productivity and AI end users, as it means lower cost of access.\"
A 'Sputnik Moment' for AI
Silicon Valley venture capitalist Marc Andreessen 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 noted in a post on social platform X.
In Europe, the ripple effect continued. ASML, which counts Taiwan's TSMC, Intel, and Samsung as customers, dropped nearly 11 percent. In Japan, SoftBank Group, a significant investor in startups, slid more than eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Reassessing AI Investments
Big Tech companies have been heavily investing in AI capabilities, with optimism over potential returns driving stock valuations to new heights. Nvidia's stock has surged over 200 percent in approximately 18 months, trading at 56 times its earnings value. In comparison, the Nasdaq has risen 53 percent, trading at a multiple of 16 times earnings.
\"The market is questioning the capital expenditure spending of the major tech companies,\" said Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, added, \"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.\"
Ichikawa cautioned, \"I think it might be a bit premature.\"
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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