Investors hammered technology stocks on Monday, sending shares of companies like Nvidia and Oracle plummeting, as the emergence of a low-cost Chinese artificial intelligence model cast doubts on Western companies' dominance in the sector.
Chinese startup DeepSeek last week launched a free AI assistant it claims uses less data and operates at a fraction of the cost of incumbent models, possibly marking a turning point in the level of investment needed for AI.
Futures on the Nasdaq 100 slid almost four percent, suggesting the index could see its biggest daily slide since September 2022 if those losses are sustained. The S&P 500 futures dropped two percent. Shares in AI chipmaker Nvidia fell 10 percent, Oracle dropped eight percent, while AI data analytics company Palantir lost seven percent in pre-market trading.
DeepSeek, which by Monday had overtaken U.S. rival ChatGPT in terms of downloads on the Apple Store, offers the prospect of a viable, cheaper AI alternative. This development has raised questions about the sustainability of the high levels of spending and investment on 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, 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, as cost is obviously much lower meaning lower cost of access,\" said Jon Withaar, a senior portfolio manager at Pictet Asset Management.
The hype around AI has powered a huge inflow of capital into equity markets over the last 18 months, as investors have bought into the technology, inflating company valuations and sending stock markets to record highs.
'Sputnik moment'
Marc Andreessen, the Silicon Valley venture capitalist, said in a post on X on Sunday that DeepSeek's R1 model was AI's \"Sputnik moment,\" referencing the former Soviet Union's launch of a satellite that marked the start of 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 said in a separate post.
In Europe, ASML, which counts Taiwan Semiconductor Manufacturing Company (TSMC), Intel, and Samsung as its customers, dropped almost 11 percent, while in Japan, startup investor SoftBank Group slid more than eight percent. Last week it announced 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 the possible returns has driven stock valuations sky-high.
Nvidia alone has risen by over 200 percent in about 18 months and trades at 56 times the value of its earnings, compared with a 53 percent rise in the Nasdaq, which trades at a multiple of 16 times the value of its constituents' earnings, according to LSEG data.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, said the market was questioning the capital expenditure of the major tech companies.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, said, \"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.\"
\"I think it might be a bit premature,\" Ichikawa added.
Reference(s):
DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
