Global technology stocks faced a sharp decline on Monday as investors reacted to the emergence of DeepSeek, a Chinese artificial intelligence (AI) startup that has introduced a low-cost AI model. The company's groundbreaking release has raised questions about the dominance of Western tech giants in the AI sector.
DeepSeek unveiled a free AI assistant last week that reportedly operates using significantly less data at a fraction of the cost compared to existing models from major players. This development suggests a potential shift in the level of investment required for AI advancement.
The impact was immediate in global markets. Futures on the Nasdaq 100 dropped nearly four percent, indicating a possible significant slide for the index, while the S&P 500 futures fell by two percent. Shares of AI chipmaker Nvidia plummeted by 10 percent, Oracle decreased by eight percent, and AI data analytics firm Palantir saw a seven percent decline in pre-market trading.
DeepSeek's AI assistant quickly surpassed U.S. rival ChatGPT in downloads on the Apple Store by Monday, offering a promising, cost-effective AI alternative. This rapid ascent has led investors to question the sustainability of the substantial spending and investment on AI by Western companies, including industry leaders like Apple and Microsoft.
The ripple effect was felt from Tokyo to Amsterdam, with shares in AI-related companies tumbling. Jon Withaar, a senior portfolio manager at Pictet Asset Management, commented, \"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 the cost to train models from over $100 million to an alleged $6 million, this is actually very positive for productivity and AI end users, as cost is obviously much lower meaning lower cost of access.\"
The excitement surrounding AI has fueled massive capital inflows into equity markets over the past 18 months, with investors eager to capitalize on the technology's potential, leading to inflated company valuations and record-high stock markets.
'Sputnik Moment' for AI
Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the Soviet Union's 1957 satellite launch that sparked the space race. He stated, \"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.\"
In Europe, companies like ASML Holdings, which counts the Taiwan Semiconductor Manufacturing Company (TSMC), Intel, and Samsung as customers, saw shares drop nearly 11 percent. In Japan, startup investor SoftBank Group fell more than eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI last week.
Major tech firms have significantly increased their investments in AI development, with optimism over potential returns driving stock valuations to soaring levels. Nvidia alone has surged by over 200 percent in the past 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 times its constituents' earnings, according to LSEG data.
\"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.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, added, \"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.\"
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
