Investors across the globe are reeling as technology stocks took a steep dive following the emergence of DeepSeek, a Chinese artificial intelligence startup that unveiled a cost-effective AI model. The launch has cast doubts on Western companies' dominance in the AI sector, prompting a massive sell-off of big AI players.
Last week, DeepSeek introduced a free assistant that utilizes less data at a fraction of the cost of incumbent models. The breakthrough is seen as a potential turning point in AI investment levels, offering a viable and cheaper alternative that could disrupt the industry.
Futures on the Nasdaq 100 slid nearly four percent, indicating the index may experience its largest daily drop since September 2022. Major AI-related stocks tumbled in pre-market trading, with Nvidia falling 10 percent, Oracle dropping eight percent, and Palantir losing seven percent.
\"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 number, this is very positive for productivity and AI end users,\" said Jon Withaar, a senior portfolio manager at Pictet Asset Management.
'Sputnik Moment'
From Tokyo to Amsterdam, shares in AI companies plummeted. Marc Andreessen, the Silicon Valley venture capitalist, described DeepSeek's new model as AI's \"Sputnik moment,\" referencing the Soviet Union's launch of the first artificial satellite in 1957 that sparked 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.
In Europe, ASML Holding, a key supplier to companies like TSMC, Intel, and Samsung, dropped almost 11 percent. In Japan, SoftBank Group slid more than eight percent after announcing a \$19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
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. \"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,\" he said.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, added, \"I think it might be a bit premature, but there's a possibility that DeepSeek's development could alter the competitive landscape in AI.\"
The hype 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. Nvidia alone has risen over 200 percent during this period and trades at 56 times the value of its earnings.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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