Investors around the globe reacted sharply on Monday as technology stocks took a significant hit following the emergence of DeepSeek's groundbreaking artificial intelligence (AI) model. The Chinese startup's low-cost AI assistant has cast doubts on the dominance of Western companies in the sector, leading to a substantial sell-off of major AI players.
DeepSeek unveiled its free AI assistant last week, claiming it operates with less data and at a fraction of the cost compared to incumbent models. This development potentially marks a pivotal moment in AI investment, challenging the heavy spending trends of established tech giants.
Futures on the Nasdaq 100 plummeted nearly four percent, signaling what could become the index's most considerable daily decline since September 2022 if losses persist. The S&P 500 futures dropped by two percent. Pre-market trading saw shares in AI chipmaker Nvidia fall by 10 percent, Oracle by eight percent, and AI data analytics firm Palantir by seven percent.
DeepSeek, which by Monday surpassed U.S. rival ChatGPT in Apple Store downloads, offers a viable and cost-effective AI alternative. This advancement has raised questions about the sustainability of massive AI investments by Western companies, including Apple and Microsoft.
\"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 actually very positive for productivity and AI end users,\" said Jon Withaar, a senior portfolio manager at Pictet Asset Management.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled. In Europe, ASML Holdings, which counts TSMC, Intel, and Samsung as customers, dropped almost 11 percent. In Japan, SoftBank Group, a prominent startup investor, slid more than eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
The hype surrounding AI has fueled substantial capital inflows into equity markets over the past 18 months, inflating company valuations and driving stock markets to record highs. Big Tech corporations have significantly increased spending on developing AI capabilities, with optimism over potential returns soaring.
\"Nvidia alone has risen by over 200 percent in about 18 months and trades at 56 times the value of its earnings,\" noted Nick Ferres, chief investment officer at Vantage Point Asset Management. \"The market is questioning the capital expenditure spending of the major tech companies.\"
'Sputnik Moment'
Silicon Valley venture capitalist Marc Andreessen commented on X (formerly Twitter) that DeepSeek's R1 model represents AI's \"Sputnik moment,\" referencing the historical launch of the Soviet Union's satellite that ignited 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 stated.
As DeepSeek's AI model challenges the status quo, global investors are reassessing their positions in established AI firms. The potential shift in AI technology dynamics underscores the rapidly evolving landscape and the need for adaptability among industry leaders and investors alike.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
