Investors worldwide are reacting to the emergence of DeepSeek, a low-cost Chinese artificial intelligence (AI) model, leading to a significant sell-off in major technology stocks. Companies such as Nvidia and Oracle witnessed substantial declines on Monday as doubts arose about Western firms' dominance in the AI sector.
Last week, startup DeepSeek launched a free AI assistant that operates using less data at a fraction of the cost of existing models. This development is seen as a potential turning point in the investment landscape for AI technologies.
Futures on the Nasdaq 100 dropped nearly four percent, suggesting the index could experience its most significant daily slide since September 2022. Shares of AI chipmaker Nvidia fell 10 percent, Oracle dropped eight percent, and AI data analytics company Palantir lost seven percent in pre-market trading.
DeepSeek quickly surpassed U.S. rival ChatGPT in Apple Store downloads, offering a viable and more affordable AI alternative. This raises questions about the sustainability of current spending and investment levels 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 over $100 million to around $6 million, this is very positive for productivity and AI end users, as the cost of access is obviously much lower.\"
The hype surrounding AI has led to massive capital inflows into equity markets over the past 18 months, inflating valuations and pushing stock markets to record highs. Nvidia, for instance, has risen over 200 percent during this period and trades at 56 times its earnings value.
'Sputnik Moment' for AI
Silicon Valley venture capitalist Marc Andreessen described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the launch of the first satellite by the Soviet Union 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,\" he stated.
In Europe, semiconductor equipment supplier ASML dropped almost 11 percent, while 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 major tech companies. Masahiro Ichikawa, Chief Market Strategist at Sumitomo Mitsui DS Asset Management, expressed concerns: \"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. I think it might be a bit premature.\"
As Big Tech continues to ramp up spending on AI development, DeepSeek's breakthrough underscores a shifting landscape that could redefine global leadership in artificial intelligence.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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