Investors around the world are reacting to a groundbreaking development in artificial intelligence from China's DeepSeek, leading to a significant sell-off in major technology stocks. The startup's recent launch of a low-cost AI assistant is challenging Western dominance in the sector and raising questions about the future of AI investment.
Last week, DeepSeek unveiled its free AI assistant, which reportedly operates using less data and at a fraction of the cost of existing models from incumbent players. This innovation has the potential to mark a turning point in the level of investment required for AI development.
As news of DeepSeek's assistant spread, futures on the Nasdaq 100 dropped nearly four percent, suggesting the index could face its biggest daily decline since September 2022. The impact was felt across the tech sector, with shares in AI chipmaker Nvidia falling 10 percent, Oracle dropping eight percent, and AI data analytics firm Palantir losing seven percent in pre-market trading.
DeepSeek's surge in popularity is evident as it has overtaken U.S. rival ChatGPT in downloads on the Apple Store. The prospect of a viable, cheaper AI alternative is prompting investors to reassess the sustainability of the significant spending on AI by Western companies such as Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-related companies tumbled. \"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 this alleged $6 million number, this is actually very positive for productivity and AI end-users, as the cost is obviously much lower, meaning lower cost of access.\"
The hype around AI has fueled massive capital inflows into equity markets over the past 18 months, inflating company valuations and pushing stock markets to record highs. Big Tech firms have ramped up spending on AI capabilities, and optimism over potential returns has driven stock valuations sky-high.
'Sputnik moment'
Marc Andreessen, the Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the Soviet Union's launch of the Sputnik satellite that marked the start of 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,\" he said in a post on social media platform X.
In Europe, semiconductor equipment maker ASML, which counts TSMC, Intel, and Samsung among its customers, saw its shares drop 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.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, noted that the market is questioning the capital expenditure of the major tech companies. \"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,\" said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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