Investors Hammer Tech Stocks as DeepSeek's AI Breakthrough Shakes Industry
Investors have turned bearish on technology stocks, leading to significant sell-offs in major Western AI companies. On Monday, shares of industry giants such as Nvidia and Oracle plummeted, following the emergence of DeepSeek's low-cost artificial intelligence (AI) model, which has 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 of existing models. This development has the potential to mark a turning point in the level of investment required for AI, challenging the substantial capital expenditures of established Western tech firms.
Market Impact
Futures on the Nasdaq 100 slid almost 4%, suggesting the index could experience its largest daily decline since September 2022 if losses persist. The S&P 500 futures dropped 2%. In pre-market trading, shares of AI chipmaker Nvidia fell 10%, rival Oracle dropped 8%, and AI data analytics company Palantir lost 7%.
DeepSeek's assistant has quickly gained popularity, overtaking U.S. rival ChatGPT in downloads on the Apple Store by Monday. The prospect of a viable, cost-effective AI alternative has prompted investors to reassess the sustainability of the high levels of spending and investment by Western companies, including Apple and Microsoft.
Global Reaction
From Tokyo to Amsterdam, shares in AI-focused companies tumbled. Jon Withaar, a senior portfolio manager at Pictet Asset Management, commented: \"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.\"
The enthusiasm around AI has fueled substantial capital inflows into equity markets over the past 18 months, as investors have bought into the technology, inflating company valuations and pushing stock markets to record highs.
'Sputnik Moment'
Silicon Valley venture capitalist Marc Andreessen described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the former Soviet Union's 1957 launch of the first artificial satellite, which ignited 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 post on X (formerly Twitter) on Sunday.
Pressure on Big Tech
In Europe, shares of semiconductor equipment maker ASML, which counts TSMC, Intel, and Samsung as customers, dropped almost 11%. In Japan, startup investor SoftBank Group slid over 8% after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Major tech companies have ramped up spending on developing AI capabilities, with optimism over potential returns driving stock valuations sky-high. Nvidia alone has risen by over 200% in approximately 18 months and trades at 56 times its earnings value, compared to a 53% rise in the Nasdaq, which trades at a multiple of 16 to its constituents' earnings.
Market Skepticism
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, noted that the market is questioning the capital expenditure of major tech companies. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, added, \"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. I think it might be a bit premature.\"
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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