DeepSeek's AI Revolution Shakes Global Tech Markets
Investors worldwide turned cautious on Monday, leading to a significant sell-off in technology stocks. Industry giants such as Nvidia and Oracle saw their shares plummet as the emergence of DeepSeek's groundbreaking artificial intelligence model cast doubts on Western companies' dominance in the sector.
Last week, Chinese startup DeepSeek unveiled a free AI assistant that operates using less data at a fraction of the cost compared to existing models. This development marks a potential turning point in the investment landscape for AI, challenging the immense capital traditionally required for AI advancements.
The Nasdaq 100 futures dropped almost four percent, indicating that the index could face its largest daily decline since September 2022. The S&P 500 futures fell by two percent. In pre-market trading, shares of AI chipmaker Nvidia fell by 10 percent, Oracle dropped eight percent, and AI analytics firm Palantir lost seven percent.
DeepSeek, which by Monday had surpassed U.S. rival ChatGPT in downloads on the Apple Store, offers a viable and cost-effective AI alternative. This achievement has raised questions about the sustainability of high levels of spending and investment in AI by Western companies, including Apple and Microsoft.
Global Impact on Tech Stocks
The ripple effects of DeepSeek's announcement were felt across global markets. From Tokyo to Amsterdam, shares in AI-focused companies tumbled.
\"We still don't know all 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 reducing the cost to train AI models from over $100 million to around $6 million, this is very positive for productivity and AI end users.\"
The enthusiasm around AI has fueled significant capital inflows into equity markets over the past 18 months, inflating company valuations and propelling stock markets to record highs.
A 'Sputnik Moment' for AI
Marc Andreessen, a prominent venture capitalist, referred to DeepSeek's R1 model as AI's \"Sputnik moment\" in a post on X (formerly Twitter) on Sunday, likening it to the launch of the Soviet satellite that initiated the space race in the 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,\" Andreessen commented.
European tech firms also felt the impact. ASML, which counts TSMC, Intel, and Samsung among its clients, dropped almost 11 percent. In Japan, SoftBank Group, a major startup investor, slid more than eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Major technology companies have been ramping up spending on AI development, with optimism about potential returns driving stock valuations to unprecedented levels. Nvidia's stock has risen by over 200 percent in 18 months, trading at 56 times its earnings value, compared to the Nasdaq's 53 percent rise and a multiple of 16.
\"The market is questioning the capital expenditure spending of the 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 are the most superior globally—there's concern that this perspective might start to change.\"
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
