DeepSeek's 'Sputnik Moment' Prompts Investors to Sell Big AI Players
Investors around the globe have reacted swiftly to the emergence of a low-cost artificial intelligence model from Chinese startup DeepSeek, triggering a significant sell-off in major technology stocks. On Monday, shares of industry giants like Nvidia and Oracle plummeted as DeepSeek's breakthrough cast doubts on Western companies' dominance in the AI sector.
Last week, DeepSeek unveiled a free AI assistant that operates using less data at a fraction of the cost of incumbent models. This development is seen by many as a potential turning point in the investment landscape for AI technologies, challenging the high-cost models of established players.
Futures on the Nasdaq 100 slid nearly four percent, suggesting the index could face its biggest daily decline since September 2022 if losses persist. The S&P 500 futures dropped two percent. In pre-market trading, shares in AI chipmaker Nvidia fell 10 percent, Oracle dropped eight percent, and AI data analytics company Palantir lost seven percent.
DeepSeek, which by Monday had surpassed U.S. rival ChatGPT in downloads on the Apple Store, offers a viable and cheaper AI alternative. This has raised questions about the sustainability of current levels of spending and investment on AI by Western companies, including Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-related companies tumbled. In Europe, ASML, which counts Taiwan Semiconductor Manufacturing Company (TSMC) from the Taiwan region, Intel, and Samsung among its customers, dropped 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.
\"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 very positive for productivity and AI end users, as cost is obviously much lower, meaning lower cost of access.\"
The hype around AI has powered a huge inflow of capital into equity markets over the past 18 months, inflating company valuations and pushing stock markets to record highs. Big Tech has ramped up spending on developing AI capabilities, with optimism over potential returns driving stock valuations sky-high.
Marc Andreessen, the Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment\" in a post on X (formerly known as Twitter) on Sunday, referencing the former Soviet Union's satellite launch 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 separate post.
Nvidia alone has risen by over 200 percent in about 18 months and trades at 56 times the value of its earnings, compared with a 53 percent rise in the Nasdaq, which trades at a multiple of 16 times the value of its constituents' earnings, according to LSEG data.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, said the market was questioning the capital expenditure of major tech companies. \"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,\" he noted.
\"I think it might be a bit premature,\" commented 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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