Global technology stocks took a significant hit on Monday as investors reacted to the emergence of DeepSeek, a Chinese artificial intelligence startup that unveiled a low-cost AI model challenging Western dominance in the sector.
DeepSeek's recent launch of a free AI assistant, which reportedly uses less data and operates at a fraction of the cost of current leading models, has raised questions about the sustainability of heavy investments by Western tech giants in AI development.
Futures on the Nasdaq 100 dropped almost four percent, hinting at a potential major decline for the index, while the S&P 500 futures fell two percent. Shares of AI chipmaker Nvidia plunged 10 percent, Oracle dropped eight percent, and AI data analytics firm Palantir saw a seven percent decrease in pre-market trading.
The rapid ascent of DeepSeek, which has surpassed U.S. rival ChatGPT in Apple Store downloads, suggests a viable and more affordable AI alternative is gaining traction. This development has prompted investors to reassess the massive spending on AI by Western companies such as Apple and Microsoft.
\"We still don't know the details and nothing has been 100 percent 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 \$100 million-plus to this alleged \$6 million, this is very positive for productivity and AI end users, as cost is obviously much lower, meaning lower cost of access.\"
From Tokyo to Amsterdam, shares in AI-related companies tumbled. In Europe, semiconductor equipment maker ASML, which counts Taiwan's TSMC, Intel, and Samsung among its customers, dropped almost 11 percent. In Japan, startup investor SoftBank Group slid more than eight percent after announcing a \$19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
The hype surrounding AI has driven significant capital into equity markets over the past 18 months, inflating company valuations and propelling stock markets to record highs. Nvidia, for instance, has risen over 200 percent during this period and trades at 56 times its earnings value, compared to the Nasdaq's multiple of 16.
\"The market is questioning the capital expenditure spending of the major tech companies,\" noted Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore.
'Sputnik Moment' for AI
Marc Andreessen, a prominent Silicon Valley venture capitalist, referred to DeepSeek's R1 model as AI's \"Sputnik moment,\" alluding to the Soviet Union's launch of the first satellite, which sparked the space race in the 1950s. \"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.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, commented on the potential shift in global tech perspectives. \"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 said. \"I think it might be a bit premature.\"
As DeepSeek continues to gain momentum, the global AI landscape may be poised for significant shifts, prompting investors, businesses, and analysts to closely monitor developments in this rapidly evolving sector.
Reference(s):
DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
