Technology stocks took a significant hit on Monday as investors reacted to the emergence of DeepSeek, a low-cost Chinese artificial intelligence model. Giants like Nvidia and Oracle saw their shares plummet, raising questions about Western companies' dominance in the AI sector.
DeepSeek, a startup from the Chinese mainland, launched a free AI assistant last week that operates using less data at a fraction of the cost of existing models. This development suggests a potential turning point in the investment required for AI.
Futures on the Nasdaq 100 slid almost four percent, signaling a possible significant downturn for the index. Nvidia shares fell 10 percent, Oracle dropped eight percent, and AI data analytics company Palantir lost seven percent in pre-market trading.
By Monday, DeepSeek had overtaken U.S. rival ChatGPT in downloads on the Apple Store. Its cost-effective AI alternative has prompted concerns about the sustainability of heavy investments by Western companies, including Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled. Jon Withaar, a senior portfolio manager at Pictet Asset Management, commented, \"If there truly has been a breakthrough in the cost to train models from \$100 million+ to this alleged \$6 million number, this is actually very positive for productivity and AI end users, as cost is obviously much lower meaning lower cost of access.\"
The excitement around AI has fueled massive investment in equity markets over the past 18 months, inflating company valuations. Nvidia alone has risen over 200 percent in that period and trades at 56 times its earnings, compared to the Nasdaq's multiple of 16.
'Sputnik Moment' in AI
Marc Andreessen, a prominent Silicon Valley venture capitalist, referred to DeepSeek's R1 model as AI's \"Sputnik moment\" in a post on X. \"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.
European and Asian markets felt the impact. In Europe, ASML, a major supplier to companies like TSMC, Intel, and Samsung, dropped almost 11 percent. In Japan, SoftBank Group declined more than eight percent after announcing a \$19 billion investment in Stargate, a data-center joint venture with OpenAI.
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. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, added, \"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.\"
As Big Tech continues to invest heavily in AI capabilities, the emergence of cost-effective alternatives like DeepSeek may reshape the industry's landscape and influence future investment strategies.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
