Investors experienced a significant market upheaval on Monday as DeepSeek's latest artificial intelligence (AI) model sent shockwaves through the tech sector. The emergence of this low-cost AI alternative has cast doubts on the dominance of Western companies like Nvidia, Oracle, and Palantir, prompting a sharp sell-off in their stocks.
Last week, DeepSeek launched its free AI assistant, claiming it uses less data at a fraction of the cost of existing models. This innovation has positioned DeepSeek ahead of U.S. rival ChatGPT in Apple Store downloads, signaling a potential turning point in the AI investment landscape.
The market reaction was swift and severe. Futures on the Nasdaq 100 plummeted nearly four percent, suggesting the index could face its largest daily decline since September 2022 if losses continue. The S&P 500 also saw a two percent drop. Notably, shares of AI chipmaker Nvidia fell by 10 percent, Oracle by eight percent, and AI data analytics company Palantir by seven percent in pre-market trading.
Marc Andreessen, a prominent Silicon Valley venture capitalist, referred to DeepSeek's R1 model as AI's \"Sputnik moment,\" likening it to the Soviet Union's pivotal satellite launch that ignited the space race in the late 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,\" Andreessen stated.
The impact of DeepSeek's breakthrough was felt globally. In Europe, ASML, a key player with clients including Taiwan's TSMC, Intel, and Samsung, saw its shares drop by almost 11 percent. In Japan, SoftBank Group's stock declined by over eight percent following its announcement of a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Experts suggest that DeepSeek's innovation may challenge the sustainability of high investment levels by Western AI companies. Jon Withaar, a senior portfolio manager at Pictet Asset Management, highlighted the potential benefits, stating, \"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.\"
Despite the immediate market turmoil, some analysts caution against overreacting. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, mentioned, \"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.\" However, he added, \"I think it might be a bit premature.\"
The hype surrounding AI has driven substantial capital into the equity markets over the past 18 months, inflating company valuations and pushing stock markets to record highs. With DeepSeek's entry into the market, the dynamics of AI investment and competition are poised to undergo significant changes, potentially reshaping the global AI landscape.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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