Investors hammered technology stocks on Monday as the launch of a low-cost Chinese artificial intelligence model by startup DeepSeek cast doubts on Western companies' dominance in the sector.
Last week, DeepSeek unveiled a free AI assistant that operates using less data at a fraction of the cost of existing models from incumbent players. This development has potentially marked a turning point in the level of investment needed for artificial intelligence, raising concerns among investors about the sustainability of high spending by Western tech giants.
Futures on the Nasdaq 100 slid almost four percent, suggesting the index could face its biggest daily decline since September 2022 if losses continue. Shares of 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 by Monday had surpassed U.S. rival ChatGPT in downloads on the Apple Store, offers the prospect of a viable and cheaper AI alternative. This has prompted questions about the massive investments made in AI development by Western companies, including Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled. ASML, which counts Taiwan Semiconductor Manufacturing Company (TSMC), Intel, and Samsung among its 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.
\"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, this is very positive for productivity and AI end users, as cost is obviously much lower, meaning lower cost of access.\"
'Sputnik moment'
Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the former Soviet Union's launch of a satellite that marked the start of the space race in the late 1950s. \"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.
The hype around AI has fueled significant inflows of capital into equity markets over the past 18 months, as investors have bought into the technology, inflating company valuations and pushing stock markets to record highs. Big Tech companies have ramped up spending on developing AI capabilities, with optimism over potential returns driving stock valuations sky-high.
Nvidia alone has risen by over 200 percent in about 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, according to LSEG data.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, noted that the market is questioning the capital expenditure of major tech companies. \"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,\" added Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management. \"I think it might be a bit premature,\" Ichikawa said.
The emergence of DeepSeek's AI model signifies a potential shift in the global AI landscape, challenging the dominance of established Western companies and opening doors for more accessible and affordable AI solutions worldwide.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
