Global Stock Markets Rattle as DeepSeek's AI Breakthrough Challenges Western Dominance
On Monday, investors around the world witnessed a significant shake-up in the technology sector. Shares of major AI companies plummeted after the emergence of DeepSeek, a Chinese startup that unveiled a low-cost artificial intelligence model. The development has cast doubts over Western companies' dominance in the AI space and prompted a widespread sell-off of big AI players.
DeepSeek's new assistant, launched last week, utilizes less data and operates at a fraction of the cost of existing models from established firms. This innovation represents a potential turning point in the AI industry, challenging the hefty investments traditionally required for AI development.
Futures on the Nasdaq 100 fell nearly four percent, indicating the index could face its most significant daily decline since September 2022 if losses persist. The S&P 500 futures dropped two percent. In pre-market trading, shares of AI chipmaker Nvidia fell 10 percent, Oracle dropped eight percent, and AI data analytics company Palantir lost seven percent.
DeepSeek has quickly gained traction, overtaking U.S. rival ChatGPT in terms of downloads on the Apple Store by Monday. The startup offers a viable, cost-effective AI alternative, raising questions about the sustainability of the substantial spending and investment on AI by Western companies such as Apple and Microsoft.
\"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 actually very positive for productivity and AI end users, as cost is obviously much lower, meaning lower cost of access.\"
From Tokyo to Amsterdam, shares in AI companies tumbled. In Europe, ASML Holding—supplier to major chipmakers including Taiwan's TSMC, Intel, and Samsung—dropped almost 11 percent. In Japan, SoftBank Group, a significant startup investor, slid more than eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
AI's 'Sputnik Moment'
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 a parallel to the former Soviet Union's launch of the Sputnik satellite that marked the beginning 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,\" Andreessen stated.
Big Tech companies have significantly increased spending on developing AI capabilities, with optimism over potential returns driving stock valuations to record highs. Nvidia alone has surged by over 200 percent in approximately 18 months, trading at 56 times the value of its earnings, compared to a 53 percent rise in the Nasdaq, which trades at a multiple of 16 to the earnings of its constituents, according to LSEG data.
\"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.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, commented, \"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.\"
However, Ichikawa added, \"I think it might be a bit premature.\"
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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