Investors around the globe unloaded technology stocks on Monday, leading to significant declines for major players like Nvidia and Oracle. The sell-off was triggered by the emergence of DeepSeek, a Chinese startup that has unveiled a low-cost artificial intelligence model, casting doubts on Western companies' dominance in the sector.
Last week, DeepSeek launched a free AI assistant that operates using less data at a fraction of the cost of existing models from incumbent players. This development is being viewed as a potential turning point in the AI industry, possibly reshaping the level of investment needed for AI advancements.
Futures on the Nasdaq 100 slid almost four percent, indicating that the index could experience its most substantial daily decline since September 2022 if the losses persist. The S&P 500 futures dropped two percent. In pre-market trading, shares in AI chipmaker Nvidia fell 10 percent, rival Oracle dropped eight percent, and AI data analytics company Palantir lost seven percent.
DeepSeek, which by Monday had surpassed U.S. rival ChatGPT in downloads on the Apple App Store, offers a viable and more affordable AI alternative. This prospect has raised questions about the sustainability of the significant spending and investment on AI by Western companies, including giants like 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 this alleged $6 million number, this is actually very positive for productivity and AI end users, as cost is obviously much lower meaning lower cost of access.\"
The surge of interest in AI has fueled massive capital inflows into equity markets, particularly over the past 18 months, with investors driving up company valuations and pushing stock markets to record highs.
'Sputnik Moment'
Marc Andreessen, a prominent Silicon Valley venture capitalist, referred to DeepSeek's R1 model as AI's \"Sputnik moment\" in a post on X (formerly Twitter) on Sunday, alluding to the Soviet Union's launch of the Sputnik 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 added in a separate post.
In Europe, shares of semiconductor equipment maker ASML, which counts Taiwan's TSMC, Intel, and Samsung among its customers, dropped almost 11 percent. In Japan, startup investor SoftBank Group plunged more than eight percent. Last week, SoftBank announced a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Major technology companies have ramped up spending on developing AI capabilities, and optimism over potential 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 to a 53 percent rise in the Nasdaq, which trades at a multiple of 16 to the value of its constituents' earnings, according to LSEG data.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, noted that the market is questioning the capital expenditure of the major tech companies.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, commented, \"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.\"
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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