Investors faced significant turbulence in the technology sector on Monday as DeepSeek's latest artificial intelligence model raised concerns about the dominance of established Western AI players. The launch of DeepSeek's free assistant, which claims to use less data and operate at a fraction of the cost of existing models, has sparked doubts among investors about the sustainability of current AI investments.
The volatility was reflected across major indices, with futures on the Nasdaq 100 sliding nearly four percent, signaling a potential for the index to experience its largest daily drop since September 2022 if the trend continues. Similarly, the S&P 500 futures fell by two percent. Leading the decline were shares of AI-centric companies: Nvidia dropped 10 percent, Oracle fell eight percent, and Palantir saw a seven percent decrease in pre-market trading.
DeepSeek quickly surpassed U.S. rival ChatGPT in downloads on the Apple Store, highlighting the startup's ability to offer a competitive and cost-effective alternative to dominant AI models. This development has led investors to question whether the high levels of spending and investment by Western companies, including tech giants like Apple and Microsoft, are justified.
Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment,\" drawing a parallel to the Soviet Union's launch of the Sputnik satellite that ignited the space race in the late 1950s. In his posts on X, Andreessen praised the R1 model as one of the most impressive breakthroughs in AI and a significant open-source contribution to the global community.
The ripple effects of DeepSeek's innovation were felt globally. In Europe, shares of ASML, a critical supplier to companies like TSMC, Intel, and Samsung, fell nearly 11 percent. In Japan, SoftBank Group experienced an over eight percent decline following its announcement of a $19 billion commitment to fund Stargate, a joint venture with OpenAI focused on data centers.
Industry experts are reevaluating the capex spending of major tech firms. Jon Withaar, a senior portfolio manager at Pictet Asset Management, highlighted the potential benefits of reduced training costs for AI models, which could lower barriers to access and enhance productivity for AI end-users.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, noted that the market is beginning to question the aggressive capital expenditure strategies of leading tech companies. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, echoed these sentiments, suggesting that the perception of American AI technologies as the most advanced may be shifting.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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