Investors across the globe are reacting to a groundbreaking development from the Chinese mainland startup DeepSeek, which last week launched a free AI assistant that operates using less data at a fraction of the cost of current models. This innovation has cast doubts on the dominance of Western companies in the artificial intelligence sector and prompted a significant sell-off of technology stocks.
On Monday, futures on the Nasdaq 100 slid almost four percent, indicating the index could experience its largest daily drop since September 2022. The S&P 500 futures dropped two percent. Shares of major AI chipmaker Nvidia fell 10 percent, Oracle dropped eight percent, and AI data analytics company Palantir lost seven percent in pre-market trading.
DeepSeek's assistant, which has overtaken U.S. rival ChatGPT in downloads on the Apple Store, offers a viable, cost-effective AI alternative. This development raises questions about the sustainability of the high levels of spending and investment in AI by Western companies like Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled. \"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 this alleged $6 million, this is very positive for productivity and AI end-users,\" said Jon Withaar, a senior portfolio manager at Pictet Asset Management.
The excitement around AI has fueled massive capital inflows into equity markets over the past 18 months, inflating company valuations and pushing stock markets to record highs. DeepSeek's advancement could signal a shift in the AI landscape, offering more accessible technology to a broader audience.
'Sputnik Moment'
Marc Andreessen, a prominent Silicon Valley venture capitalist, referred to DeepSeek's R1 model as AI's \"Sputnik moment,\" alluding to the Soviet Union's 1957 launch of the first artificial satellite, which 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 said in a post on social media platform X.
Meanwhile, in Europe, semiconductor equipment maker ASML, which counts TSMC, Intel, and Samsung as 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.
Major technology companies have significantly increased spending on developing AI capabilities, and optimism about potential returns has driven stock valuations to soaring heights. Nvidia alone has risen by over 200 percent in about 18 months and trades at 56 times the value of its earnings, according to LSEG data.
\"The market is questioning the capital expenditure spending of the major tech companies,\" said 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.\"
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
