Investors sent shockwaves through global technology markets on Monday, as shares of major AI players like Nvidia and Oracle plummeted. The catalyst was the emergence of DeepSeek, a Chinese startup that launched a low-cost artificial intelligence assistant, casting doubt on Western companies' dominance in the sector.
DeepSeek's new free assistant, unveiled last week, reportedly uses less data and operates at a fraction of the cost of existing models. This development could mark a significant turning point in the level of investment needed for AI technologies.
Futures on the Nasdaq 100 slid nearly four percent, suggesting the index could face its biggest daily decline since September 2022. 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, which by Monday had surpassed U.S. rival ChatGPT in downloads on the Apple Store, offers a viable and cheaper AI alternative. This has raised questions about the sustainability of the massive spending on AI by Western companies, including Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI companies tumbled.
\"We still don't know the details and nothing has been 100 percent confirmed in regards to the claims, but if there truly has been a breakthrough in the cost to train models from $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,\" said Jon Withaar, a senior portfolio manager at Pictet Asset Management.
The enthusiasm around AI has fueled a massive influx of capital into equity markets over the past 18 months, as investors have poured money into the technology, inflating company valuations and pushing stock markets to record highs.
'Sputnik Moment'
Marc Andreessen, the Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the Soviet Union's 1957 launch of the Sputnik satellite 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 said in a post on X on Sunday.
In Europe, shares of ASML—whose customers include TSMC of Taiwan, Intel, and Samsung—dropped nearly 11 percent. In Japan, SoftBank Group, a major startup investor, slid more than eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Major tech companies have ramped up spending on developing AI capabilities, with optimism over potential returns driving stock valuations to unprecedented levels.
Nvidia alone has risen by over 200 percent in about 18 months and trades at 56 times its earnings, compared with a 53 percent rise in the Nasdaq, which trades at a multiple of 16 times the earnings of its constituents, according to LSEG data.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, said the market was questioning the capital expenditure of major tech companies.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, noted, \"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.\"
\"I think it might be a bit premature,\" Ichikawa added.
Reference(s):
DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
