Global tech markets faced a seismic shift on Monday as investors offloaded major technology stocks following the unexpected emergence of DeepSeek's low-cost artificial intelligence model. The startup's breakthrough has cast doubts over the dominance of established Western companies in the AI sector, triggering significant sell-offs.
Last week, Chinese startup DeepSeek unveiled a free AI assistant that operates using less data at a fraction of the cost of incumbent models. This development is being hailed as a potential turning point in AI investment, challenging the notion that advanced AI requires exorbitant resources.
Futures on the Nasdaq 100 plunged nearly four percent, positioning the index for its most significant daily decline since September 2022. The S&P 500 futures dropped two percent. AI chipmaker Nvidia saw shares fall by 10 percent, Oracle declined by eight percent, and AI data analytics firm Palantir lost seven percent in pre-market trading.
By Monday, DeepSeek had surpassed U.S. rival ChatGPT in downloads on the Apple Store. The prospect of a viable, more affordable AI alternative is prompting investors to question the sustainability of the substantial spending on AI development by Western giants 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,\" said Jon Withaar, a senior portfolio manager at Pictet Asset Management. \"But if there truly has been a breakthrough in reducing the cost to train models from over $100 million to around $6 million, this is very positive for productivity and AI end users.\"
The excitement surrounding AI has fueled massive capital inflows into equity markets over the past 18 months. Investors have been fervently buying into the technology, inflating company valuations and propelling stock markets to record highs.
'Sputnik moment'
Silicon Valley venture capitalist Marc Andreessen described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the Soviet Union's 1957 satellite launch 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,\" he stated on social media platform X.
In Europe, semiconductor equipment maker ASML, which counts Taiwan Semiconductor Manufacturing Company (TSMC), Intel, and Samsung among its customers, dropped almost 11 percent. In Japan, tech 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.
Big Tech has ramped up spending on AI capabilities, with optimism over potential returns driving stock valuations to unprecedented levels. Nvidia's value has more than tripled in 18 months, trading at 56 times earnings—significantly higher than the Nasdaq's multiple of 16.
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. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, commented, \"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 DeepSeek's AI model challenges the status quo, global investors and tech companies are reevaluating their positions. The coming weeks may reveal whether this marks a lasting shift in the AI landscape or a temporary market reaction.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
