Investors around the world are reevaluating their positions in major technology stocks following the launch of DeepSeek's groundbreaking artificial intelligence model. On Monday, shares of leading AI companies like Nvidia and Oracle plummeted as DeepSeek's low-cost AI assistant challenged the dominance of Western tech giants in the sector.
Last week, Chinese startup DeepSeek unveiled a free AI assistant that operates using significantly less data at a fraction of the cost compared to existing models from incumbent players. This development has sparked speculation that the level of investment required for AI innovation might be entering a new era.
Futures on the Nasdaq 100 dropped nearly four percent, indicating the potential for the index to experience its most significant daily decline since September 2022. The S&P 500 futures fell by two percent. In pre-market trading, shares of AI chipmaker Nvidia fell 10 percent, Oracle dropped eight percent, and AI data analytics firm Palantir lost seven percent.
DeepSeek's assistant, which by Monday had surpassed U.S. rival ChatGPT in downloads on the Apple Store, offers a viable and more affordable AI alternative. This has prompted questions about the sustainability of the massive spending and investment in AI by Western companies, including tech giants like Apple and Microsoft.
Read more: DeepSeek tops iPhone app store charts: What does it mean?
The impact was felt globally as shares in AI-focused companies tumbled from Tokyo to Amsterdam.
\"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, this is actually very positive for productivity and AI end users, as cost is obviously much lower, meaning lower cost of access.\"
The surge in AI interest has driven substantial capital into equity markets over the past 18 months, inflating company valuations and pushing stock markets to record highs.
'Sputnik Moment' for AI
Marc Andreessen, a prominent Silicon Valley venture capitalist, referred to DeepSeek's R1 model as AI's \"Sputnik moment,\" alluding to the Soviet Union's 1957 satellite launch 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,\" Andreessen commented on social media platform X.
In Europe, shares of ASML, a company supplying advanced chip-making equipment, dropped almost 11 percent. In Japan, SoftBank Group, a major startup investor, slid more than eight percent after recently announcing a \$19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Major tech companies have significantly increased their spending on developing AI capabilities, with optimism over potential returns driving stock valuations to lofty levels.
Nvidia's stock has surged over 200 percent in approximately 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 questioning the capital expenditure 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—there's concern that this perspective might start to change.\"
\"I think it might be a bit premature,\" Ichikawa noted.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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