Investors globally are reeling as technology stocks plunged on Monday, following the emergence of a low-cost Chinese artificial intelligence (AI) model that threatens to disrupt Western companies' dominance in the sector.
Startup DeepSeek last week unveiled a free AI assistant that operates using less data at a fraction of the cost of existing models. This development is seen by many as a potential turning point in the AI industry, significantly reducing the investment needed for AI development.
The impact was immediate in financial markets. Futures on the Nasdaq 100 slid almost four percent, hinting at what could become the index's largest daily drop since September 2022 if losses persist. The S&P 500 futures dropped two percent. Shares in AI chipmaker Nvidia fell 10 percent, while rivals Oracle and Palantir lost eight and seven percent respectively in pre-market trading.
DeepSeek, which by Monday had surpassed U.S. rival ChatGPT in downloads on the Apple Store, raises critical questions about the sustainability of heavy investment in AI by Western tech giants like Apple and Microsoft. From Tokyo to Amsterdam, shares in AI-focused companies tumbled amid investor concerns.
\"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 an alleged $6 million, this is very positive for productivity and end-users, as it means a lower cost of access.\"
'Sputnik Moment' for AI
Silicon Valley venture capitalist Marc Andreessen described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the former Soviet Union's 1957 satellite launch that spurred 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.
The ripple effect was felt across global markets. In Europe, shares of semiconductor equipment maker ASML—whose customers include Taiwan Semiconductor Manufacturing Company (TSMC), Intel, and Samsung—dropped almost 11 percent. In Japan, SoftBank Group slid more than eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Big Tech has significantly ramped up spending on AI capabilities, driving stock valuations to new heights amid optimism over potential returns. Nvidia's stock alone has risen over 200 percent in about 18 months, trading 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 starting to question the capital expenditure of major tech companies,\" noted Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, remarked, \"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 added, \"I think it might be a bit premature.\"
Reference(s):
DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
