Investors around the world reacted strongly on Monday as DeepSeek, a Chinese startup, unveiled a low-cost artificial intelligence model that challenges the dominance of Western tech giants in the AI sector. The announcement prompted a significant sell-off in technology stocks, with global players like Nvidia and Oracle experiencing notable declines.
DeepSeek recently launched a free AI assistant that operates using less data and at a fraction of the cost compared to models from incumbent industry leaders. This development has raised questions about the sustainability of the substantial investments made by Western companies in AI technology.
The Nasdaq 100 futures slid almost four percent, indicating a potential for the index to record its most significant daily drop since September 2022. Shares in AI chipmaker Nvidia fell by 10 percent, while Oracle dropped eight percent, and AI data analytics company Palantir lost seven percent in pre-market trading. The impact was felt globally, with AI-related shares tumbling from Tokyo to Amsterdam.
DeepSeek's AI assistant has quickly gained popularity, overtaking U.S. rival ChatGPT in downloads on the Apple Store by Monday. The emergence of a viable and cost-effective AI alternative has prompted investors and market analysts to reassess the future landscape of the AI industry.
\"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 the cost is obviously much lower, meaning lower cost of access.\"
The last 18 months have seen a significant influx of capital into the equity markets driven by the hype around AI, with investors buying into the technology and inflating company valuations. However, DeepSeek's breakthrough is causing many to question the sustainability of the current levels of spending and investment.
'Sputnik Moment'
Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the Soviet Union's 1957 launch of the first artificial satellite, which marked the beginning of 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 stated on social media.
The ripple effect of DeepSeek's announcement extended to European and Asian markets. In Europe, shares of semiconductor equipment maker ASML dropped almost 11 percent, while in Japan, startup investor SoftBank Group slid more than eight percent. Last week, SoftBank announced a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Major technology companies have been ramping up spending to develop AI capabilities, with optimism over potential returns driving stock valuations to soaring heights. Nvidia, for instance, has risen by over 200 percent in about 18 months. But now, market analysts are expressing concerns.
\"The market is questioning the capital expenditure spending of the major tech companies,\" noted Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore. \"DeepSeek's emergence could signal a shift in the competitive dynamics of the AI industry.\"
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, echoed these sentiments. \"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 said. \"I think it might be a bit premature, but it's something we need to watch closely.\"
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
