Investors worldwide reacted swiftly on Monday as technology stocks took a significant hit following the unveiling of DeepSeek's new artificial intelligence (AI) assistant. The Chinese startup's low-cost AI model has raised concerns about the dominance of Western tech giants in the AI sector, prompting a sell-off of major players like Nvidia and Oracle.
DeepSeek's assistant, launched last week, employs less data at a fraction of the cost compared to existing models from established companies. This development has been hailed as a potential turning point in AI investment, suggesting that the level of spending required to develop cutting-edge AI technologies could drastically decrease.
The impact on the markets was immediate. Futures on the Nasdaq 100 slid nearly four percent, indicating the index might experience its most significant daily decline since September 2022 if losses continue. The S&P 500 futures dropped by two percent. Pre-market trading saw shares of AI chipmaker Nvidia fall by 10 percent, Oracle by eight percent, and AI data analytics company Palantir by seven percent.
DeepSeek's assistant quickly surpassed U.S. rival ChatGPT in downloads on the Apple Store, offering a viable and more affordable AI alternative. This surge has prompted questions about the sustainability of high-level spending and investment on AI by Western companies, including tech 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, 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,\" said Jon Withaar, a senior portfolio manager at Pictet Asset Management. \"Cost is obviously much lower, meaning lower cost of access.\"
The hype surrounding AI has fueled substantial capital inflows into equity markets over the past 18 months. Investors have been eager to buy into the technology, inflating company valuations and propelling stock markets to record highs. However, DeepSeek's emergence is challenging the status quo.
'Sputnik Moment'
Silicon Valley venture capitalist Marc Andreessen described DeepSeek's R1 model as AI's \"Sputnik moment\" in a post on X (formerly Twitter) on Sunday, referencing the launch of the Soviet satellite that initiated 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 added.
In Europe, ASML Holding, which counts Taiwan's TSMC, Intel, and Samsung as customers, 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 firms have significantly increased spending on developing AI capabilities, with optimism about potential returns driving stock valuations sky-high. Nvidia alone has risen over 200 percent in about 18 months and trades at 56 times the value of its earnings, compared with a 53 percent rise in the Nasdaq, which trades at a multiple of 16 times earnings.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, noted that the market is questioning the capital expenditure of the 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,\" said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management. \"I think it might be a bit premature,\" he added.
As DeepSeek continues to make waves in the AI industry, investors and analysts are closely watching how this development will reshape the competitive landscape, potentially redefining investment strategies and technological leadership in the sector.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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