Investors worldwide reacted sharply on Monday as DeepSeek, a Chinese startup, introduced a low-cost artificial intelligence model that challenged the dominance of established Western AI companies. This development has led to significant declines in technology stocks, raising questions about the sustainability of current investment levels in the AI sector.
DeepSeek launched its free assistant last week, claiming it uses less data and costs a fraction of what competitors require. This innovation has already made waves, with DeepSeek surpassing U.S. rival ChatGPT in downloads on the Apple Store. The emergence of a viable and cheaper AI alternative has cast doubt on the dominance of major Western firms like Nvidia, Oracle, and Palantir.
The stock market reacted swiftly to this news. Futures on the Nasdaq 100 slid nearly four percent, potentially marking the index’s largest daily drop since September 2022 if losses continue. The S&P 500 also dropped by two percent. Specifically, shares of AI chipmaker Nvidia fell by ten percent, Oracle by eight percent, and Palantir saw a seven percent decline in pre-market trading.
Jon Withaar, a senior portfolio manager at Pictet Asset Management, noted, \"If there truly has been a breakthrough in the cost to train models from $100 million+ to this alleged $6 million number, this is very positive for productivity and AI end users, as lower costs mean greater access.\" This sentiment reflects a broader concern among investors about the escalating capital expenditures by major tech companies.
Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment.\" In a post on X, he praised the model as one of the most impressive breakthroughs he has seen and highlighted its open-source nature as a significant contribution to the global community.
The ripple effects of DeepSeek's announcement were felt across global markets. In Europe, shares of ASML, which counts Taiwan's TSMC, Intel, and Samsung as customers, dropped by almost eleven percent. In Japan, SoftBank Group's shares fell by more than eight percent following the news.
Nvidia, which had seen its stock rise by over 200 percent in approximately eighteen months and trades at fifty-six times its earnings, experienced a sharp decline in response to the new competition. This contrasts with the Nasdaq's broader rise of fifty-three percent over the same period, which trades at a multiple of sixteen times earnings.
Investment experts have voiced their concerns regarding the future of AI investments. Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, stated that the market is beginning to question the capital expenditure strategies of major tech companies. Meanwhile, Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, expressed that while there's a growing perception of American AI superiority, it might start to change, although he considers this shift to be premature.
The developments surrounding DeepSeek highlight a pivotal moment in the AI industry, where cost-effective innovations could reshape investment landscapes and challenge established market leaders.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
