Investors around the globe hammered technology stocks on Monday as the emergence of a low-cost Chinese artificial intelligence (AI) model cast doubts on Western companies' dominance in the sector. The sell-off sent shares of major tech players like Nvidia and Oracle plummeting.
Chinese startup DeepSeek last week launched a free AI assistant, claiming it uses less data at a fraction of the cost of incumbent players' models. The development could mark a turning point in the level of investment needed for AI, challenging the heavy spending by Western tech giants.
Futures on the Nasdaq 100 slid almost four percent, suggesting the index could face its biggest daily drop since September 2022. The S&P 500 futures dropped two percent. In pre-market trading, shares in AI chipmaker Nvidia fell 10 percent, Oracle dropped eight percent, and AI data analytics company Palantir lost seven percent.
DeepSeek, which by Monday had overtaken U.S. rival ChatGPT in downloads on the Apple Store, offers a viable, cheaper AI alternative. This has raised questions about the sustainability of the massive investments in AI by Western companies, including Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled. \"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 AI end users, as the cost is obviously much lower, meaning lower cost of access.\"
'Sputnik Moment' for AI
Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the Soviet Union's 1957 launch of the first artificial satellite that 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,\" he posted on social media platform X.
In Europe, shares of semiconductor equipment maker ASML, which counts the Taiwan region's TSMC, Intel, and Samsung as customers, dropped almost 11 percent. In Japan, tech investor 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 ramped up spending on developing AI capabilities, and optimism over potential returns has driven stock valuations sky-high. Nvidia alone has risen over 200 percent in about 18 months and trades at 56 times the value of its earnings, compared to a 53 percent rise in the Nasdaq, which trades at a multiple of 16 times earnings, according to LSEG data.
\"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, 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 noted, \"I think it might be a bit premature.\"
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
