Global tech markets reeled on Monday as investors offloaded shares in major technology companies following the emergence of a cost-effective artificial intelligence (AI) model from China's DeepSeek. The startup's innovative AI assistant has raised questions about the dominance and investment strategies of Western tech giants in the AI sector.
Shares of leading AI companies experienced significant declines. Futures on the Nasdaq 100 fell nearly four percent, suggesting a potential major slide in the index. AI chipmaker Nvidia saw its shares drop by 10 percent, Oracle fell eight percent, and AI data analytics firm Palantir lost seven percent in pre-market trading.
DeepSeek's newly launched assistant, which surpasses U.S. competitor ChatGPT in Apple Store downloads, offers advanced AI capabilities using less data at a fraction of the cost of existing models. This development has prompted investors to reconsider the sustainability of the hefty spending on AI by Western companies such as Apple and Microsoft.
'Sputnik Moment' for AI
Silicon Valley venture capitalist Marc Andreessen described DeepSeek's R1 model as AI's \"Sputnik moment,\" alluding to the 1957 launch of the Soviet satellite 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,\" Andreessen stated on social media.
The impact was felt globally, with AI-related shares tumbling from Tokyo to Amsterdam. In Europe, semiconductor equipment maker ASML—supplier to companies like Taiwan's TSMC, Intel, and Samsung—dropped almost 11 percent. In Japan, SoftBank Group, which recently announced a $19 billion investment in a data-center joint venture with OpenAI, slid more than eight percent.
Jon Withaar, senior portfolio manager at Pictet Asset Management, remarked, \"If there truly has been a breakthrough in the cost to train models from $100 million+ to this alleged $6 million number, this is actually very positive for productivity and AI end users, as cost is obviously much lower meaning lower cost of access.\"
Reassessing Tech Investments
The enthusiasm for AI has driven substantial capital into equity markets over the past 18 months, inflating company valuations and pushing stock markets to new heights. Nvidia's stock has soared over 200 percent during this period, trading at 56 times its earnings value. In comparison, the Nasdaq index has risen 53 percent, trading at 16 times the earnings value of its constituents, according to LSEG data.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, noted, \"The market is questioning the capital expenditure spending of the major tech companies.\" Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, added, \"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. I think it might be a bit premature.\"
As investors reassess their positions, the emergence of DeepSeek's AI model signifies a potential shift in the global AI landscape, prompting a reevaluation of investment strategies and the future direction of AI development.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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