Global tech stocks plummet as DeepSeek's cost-effective AI model challenges Western dominance
Investors around the world reacted swiftly on Monday as technology stocks faced a significant downturn. Industry giants such as Nvidia and Oracle saw their shares decline sharply, prompted by the emergence of a low-cost artificial intelligence model from Chinese startup DeepSeek. This development has cast doubt on Western companies' dominance in the AI sector.
Last week, DeepSeek launched a free AI assistant that reportedly operates using less data and at a fraction of the cost of existing models from established players. This innovation could mark a pivotal moment in AI investment, potentially redefining the financial landscape of AI development.
Futures on the Nasdaq 100 fell nearly four percent, indicating the index might experience its most substantial daily drop since September 2022 if losses persist. The S&P 500 futures declined by two percent. In pre-market trading, shares of AI chipmaker Nvidia dropped 10 percent, Oracle decreased by eight percent, and AI data analytics firm Palantir lost seven percent.
DeepSeek's rapid rise, surpassing U.S. rival ChatGPT in downloads on the Apple Store by Monday, presents a viable and more affordable AI alternative. This surge has raised questions about the sustainability of the high levels of spending and investment on AI by Western companies, including tech leaders like Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-focused companies saw significant declines. \"We still don't know the details and nothing has been 100 percent confirmed regarding the claims, but if there truly has been a breakthrough in the cost to train models from over $100 million to the alleged $6 million, this is very positive for productivity and AI end users, as costs are obviously much lower, meaning lower cost of access,\" said Jon Withaar, a senior portfolio manager at Pictet Asset Management.
The enthusiasm surrounding AI has fueled massive capital inflows into equity markets, particularly over the last 18 months. Investors have heavily backed the technology, inflating company valuations and pushing stock markets to record highs.
'Sputnik moment'
Silicon Valley venture capitalist Marc Andreessen described DeepSeek's R1 model as AI's \"Sputnik moment\" in a post on X (formerly Twitter) on Sunday, referencing the former Soviet Union's 1950s satellite launch that ignited the space race. \"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 commented separately.
European and Asian markets reflected the shake-up. In Europe, shares of ASML, which counts Taiwan Semiconductor Manufacturing Company (TSMC), Intel, and Samsung among its customers, dropped almost 11 percent. In Japan, startup investor SoftBank Group declined more than eight percent, shortly after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Major technology companies have significantly increased spending on developing AI capabilities. Optimism about potential returns has driven stock valuations to soar. Nvidia's stock alone has risen over 200 percent in approximately 18 months and trades at 56 times its earnings value, compared to a 53 percent rise in the Nasdaq, which trades at a multiple of 16 times its constituents' earnings, according to data from LSEG.
\"The market is starting to question the capital expenditure spending of the major tech companies,\" noted Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, added, \"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.\"
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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