Global technology stocks experienced a significant downturn on Monday following the emergence of DeepSeek's low-cost Chinese artificial intelligence (AI) model. Investors reacted sharply, leading to notable declines in major tech companies such as Nvidia and Oracle, as confidence in Western companies' dominance in the AI sector wavered.
Last week, startup DeepSeek unveiled a free AI assistant that reportedly operates using less data and at a fraction of the cost compared to existing models from incumbent players. This development has raised questions about the sustainability of the substantial investments made by Western tech giants like Apple and Microsoft in AI technology.
Futures on the Nasdaq 100 dropped nearly four percent, hinting at the potential for the index to experience its most significant daily decline since September 2022. Pre-market trading saw shares in AI chipmaker Nvidia fall by 10 percent, Oracle decline by eight percent, and AI data analytics company Palantir lose seven percent.
\"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 figure, this is actually very positive for productivity and AI end users, as the cost is obviously much lower, meaning lower cost of access.\"
The AI hype has fueled a massive influx of capital into equity markets over the past 18 months, with investors eager to capitalize on the technology's potential, inflating company valuations and pushing stock markets to record highs. From Tokyo to Amsterdam, shares in AI-focused companies tumbled amid concerns over the shifting landscape.
'Sputnik Moment' for AI
Marc Andreessen, a prominent Silicon Valley venture capitalist, referred to DeepSeek's R1 model as AI's \"Sputnik moment\" in a post on social media platform X (formerly Twitter) on Sunday. Drawing parallels to the Soviet Union's launch of the Sputnik satellite in the late 1950s, Andreessen highlighted the potential significance of DeepSeek's breakthrough. \"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.
European tech firms were not immune to the ripple effects. ASML Holding, which counts Taiwan Semiconductor Manufacturing Company (TSMC), Intel, and Samsung among its customers, saw its shares drop almost 11 percent. In Japan, startup investor SoftBank Group fell more than eight percent, shortly after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
As major technology companies ramp up spending on AI development, optimism over potential returns has driven stock valuations to soaring heights. Nvidia alone has surged over 200 percent in approximately 18 months and trades at 56 times its earnings value—a stark contrast to the Nasdaq's 53 percent rise, trading at a multiple of 16 times earnings.
\"The market is starting to question the capital expenditure of the major tech companies,\" noted Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore. \"DeepSeek's advancement could signify a shift in how AI development is approached, potentially disrupting current investment strategies.\"
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, expressed cautious skepticism. \"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.\"
The unfolding developments surrounding DeepSeek's AI model underscore the dynamic nature of the global technology landscape, prompting investors and industry leaders to reassess strategies in the face of emerging competition.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
