Investors Hammer Tech Stocks Amid DeepSeek's AI Breakthrough
Global technology stocks tumbled on Monday as investors reacted to the emergence of a low-cost Chinese artificial intelligence model, DeepSeek, casting doubts on Western companies' dominance in the sector.
Last week, startup DeepSeek launched a free AI assistant that reportedly uses less data at a fraction of the cost of incumbent players' models. This development is seen as a potential turning point in the investment landscape for AI technology.
Futures on the Nasdaq 100 slid almost 4%, suggesting the index could experience its biggest daily decline since September 2022 if losses persist. S&P 500 futures dropped 2%. In pre-market trading, shares of AI chipmaker Nvidia fell 10%, Oracle dropped 8%, and AI data analytics company Palantir lost 7%.
DeepSeek, which by Monday had overtaken U.S. rival ChatGPT in downloads on the Apple Store, offers the prospect of a viable, cost-effective AI alternative. This has raised questions about the sustainability of the substantial investments in AI by Western companies, including Apple and Microsoft.
\"We still don't know the details, and nothing has been 100% confirmed regarding the claims,\" said Jon Withaar, 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, it's very positive for productivity and AI end users. Lower costs mean greater access.\"
From Tokyo to Amsterdam, shares in AI-focused companies declined. In Europe, ASML Holding, which counts TSMC, Intel, and Samsung as its customers, dropped almost 11%. In Japan, startup investor SoftBank Group slid more than 8%; last week, it announced a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
The enthusiasm 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 driving stock markets to record highs.
'Sputnik Moment' for AI
Silicon Valley venture capitalist Marc Andreessen described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the Soviet Union's 1957 satellite launch that marked the start of 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 posted on social media platform X.
Big Tech has ramped up spending on developing AI capabilities, with optimism over potential returns propelling stock valuations sky-high. Nvidia alone has risen over 200% in about 18 months and trades at 56 times its earnings, compared to a 53% rise in the Nasdaq, which trades at a multiple of 16 times its constituents' 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, expressed concerns over the shifting landscape. \"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,\" he said. \"I think it might be a bit premature.\"
The emergence of DeepSeek's cost-effective AI model may signal a significant shift in the global AI landscape, prompting investors and companies alike to reassess strategies and expectations in this rapidly evolving sector.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
