Investors around the globe are re-evaluating their positions in major technology stocks following the emergence of DeepSeek, a Chinese artificial intelligence startup that has unveiled a low-cost AI model. This development casts doubt on Western companies' dominance in the sector and signals a potential turning point in AI investment.
On Monday, technology stocks took a significant hit. Shares of AI chipmaker Nvidia fell 10 percent, Oracle dropped eight percent, and AI analytics firm Palantir lost seven percent in pre-market trading. Futures on the Nasdaq 100 slid almost four percent, pointing to a possible substantial daily decline, while the S&P 500 futures dropped two percent.
DeepSeek launched a free assistant last week that claims to operate using less data at a fraction of the cost of existing models. By Monday, it had overtaken U.S. rival ChatGPT in downloads on the Apple Store, offering a viable and more affordable AI alternative. This has raised questions about the sustainability of heavy investment in AI by Western companies, including tech giants like Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled. In Europe, ASML Holding—which counts TSMC, Intel, and Samsung among its customers—dropped almost 11 percent. In Japan, startup investor SoftBank Group slid more than eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Jon Withaar, a senior portfolio manager at Pictet Asset Management, commented on the situation: \"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 reducing the cost to train models from over $100 million to around $6 million, this is very positive for productivity and AI end users, as it means a lower cost of access.\"
The enthusiasm surrounding AI has fueled massive capital inflows into equity markets over the past 18 months, inflating company valuations and pushing stock markets to record highs. Nvidia, for instance, has seen its stock rise by over 200 percent in this period, trading at 56 times its earnings value.
'Sputnik Moment' for AI
Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment\" in a post on X. Drawing a parallel with the former Soviet Union's 1957 satellite launch that ignited the space race, Andreessen praised the breakthrough: \"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.\"
Big Tech companies have been ramping up spending on AI development, with optimism over potential returns driving stock valuations sky-high. However, the emergence of DeepSeek's cost-effective model is causing market analysts to question the capital expenditures of major tech firms.
Nick Ferres, Chief Investment Officer at Vantage Point Asset Management in Singapore, noted that the market is scrutinizing the spending of these companies. 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. I think it might be a bit premature.\"
The unfolding scenario highlights a shift in the global AI landscape, with DeepSeek's innovation potentially leveling the playing field and prompting a reassessment of investment strategies among technology investors worldwide.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
