DeepSeek_s_AI_Breakthrough_Sparks_Global_Tech_Sell_Off

DeepSeek’s AI Breakthrough Sparks Global Tech Sell-Off

Investors hammered technology stocks on Monday following the emergence of a low-cost Chinese artificial intelligence model from startup DeepSeek, casting doubts on Western companies' dominance in the sector.

DeepSeek last week unveiled a free AI assistant that reportedly operates using less data at a fraction of the cost of existing models. This development may signal a turning point in the level of investment needed for AI technologies.

Futures on the Nasdaq 100 slid almost four percent, suggesting the index could experience its biggest daily drop since September 2022 if losses persist. The S&P 500 futures dropped two percent. Shares in AI chipmaker Nvidia fell 10 percent, Oracle dropped eight percent, and AI data analytics company Palantir lost seven percent in pre-market trading.

By Monday, DeepSeek had overtaken its U.S. rival ChatGPT in downloads on the Apple App Store. The prospect of a viable, cheaper AI alternative has raised questions about the sustainability of the significant spending and investment in AI by Western companies, including Apple and Microsoft.

From Tokyo to Amsterdam, shares in AI-related 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 an alleged $6 million, this is very positive for productivity and AI end users, as the lower cost means increased accessibility.\"

The hype around AI has powered a massive inflow of capital into equity markets over the past 18 months, as investors bought into the technology, inflating company valuations and pushing stock markets to record highs.

'Sputnik Moment'

Silicon Valley venture capitalist Marc Andreessen referred to DeepSeek's R1 model as AI's \"Sputnik moment\" in a post on X (formerly Twitter) on Sunday, referencing the former Soviet Union's launch of the first satellite that marked the start 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,\" he said in a separate post.

In Europe, shares of ASML, which counts Taiwan-based TSMC, Intel, and Samsung as customers, dropped almost 11 percent. In Japan, startup investor SoftBank Group fell more than eight percent; last week it announced a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.

Big Tech companies have ramped up spending on developing AI capabilities, with optimism over potential returns driving stock valuations sky-high. 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 earnings.

\"The market is questioning the capital expenditure spending of the major tech companies,\" said 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, like Nvidia and ChatGPT, are the most superior globally—that perspective might start to change.\"

\"I think it might be a bit premature,\" Ichikawa said.

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