Investors across the globe reacted sharply on Monday as technology stocks took a significant hit following the emergence of a low-cost artificial intelligence model from the Chinese mainland. The new AI assistant, developed by startup DeepSeek, has cast doubts on Western companies' dominance in the sector, sending shares of major tech firms plummeting.
Last week, DeepSeek launched a free AI assistant that reportedly operates using less data at a fraction of the cost compared to incumbent models. This development is seen by many as a potential turning point in the investment landscape for AI technologies.
Futures on the Nasdaq 100 fell almost four percent, signaling what could become the index's most substantial daily drop since September 2022. 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.
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 high level of spending and investment on AI by Western companies, including Apple and Microsoft.
Read more: DeepSeek tops iPhone app store charts: What does it mean?
The impact was felt from Tokyo to Amsterdam, with shares in AI-focused companies tumbling worldwide.
'Sputnik Moment' for AI
Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment\" in a post on X (formerly Twitter) on Sunday. The term references the former Soviet Union's launch of the first artificial satellite in 1957, which sparked 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 said in a separate post.
Financial analysts are weighing in on the potential implications. Jon Withaar, a senior portfolio manager at Pictet Asset Management, noted, \"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 this alleged $6 million, this is very positive for productivity and AI end users, as cost is obviously much lower meaning lower cost of access.\"
Big Tech companies have significantly increased spending on developing AI capabilities, with optimism over potential returns driving stock valuations to record highs. Nvidia alone has risen by over 200 percent in about 18 months, trading at 56 times the value of its earnings, compared with a 53 percent rise in the Nasdaq.
In Europe, shares of semiconductor equipment maker ASML Holding, which counts Taiwan Semiconductor Manufacturing Company (TSMC), Intel, and Samsung as its customers, dropped almost 11 percent. In Japan, startup investor SoftBank Group slid more than eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, commented on market sentiments. \"The market is questioning the capital expenditure spending of the major tech companies,\" he said.
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.\" He cautioned, however, \"I think it might be a bit premature.\"
The emergence of DeepSeek's AI model underscores the rapidly evolving landscape of artificial intelligence, with implications for investors, tech companies, and end users worldwide. As the sector adapts to new developments, stakeholders are closely monitoring how reduced costs and increased competition may reshape the future of AI.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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