Investors witnessed a significant shake-up in the technology sector on Monday, as major tech stocks plummeted following the emergence of DeepSeek's new artificial intelligence model. The low-cost Chinese AI assistant has cast doubts on Western companies' dominance in the sector, prompting a sell-off of shares in leading AI players.
Startup DeepSeek launched its free AI assistant last week, claiming it utilizes less data at a fraction of the cost of existing models. This development could mark a turning point in the level of investment required for AI technologies.
Futures on the Nasdaq 100 dropped nearly four percent, suggesting the index could experience its largest daily decline since September 2022 if losses persist. The S&P 500 futures also fell by two percent. Shares in AI chipmaker Nvidia fell 10 percent, while rivals Oracle and Palantir dropped eight and seven percent respectively in pre-market trading.
DeepSeek, which by Monday had overtaken U.S. rival ChatGPT in downloads on the Apple Store, offers a viable, cheaper AI alternative. This 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 companies tumbled as investors reacted to the news.
\"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,\" said Jon Withaar, a senior portfolio manager at Pictet Asset Management. \"Lower costs mean lower access barriers.\"
The excitement surrounding AI has driven massive capital inflows into equity markets over the past 18 months, with investors buying into the technology, inflating company valuations, and pushing stock markets to record highs.
'Sputnik moment'
Marc Andreessen, the Silicon Valley venture capitalist, referred to DeepSeek's R1 model as AI's \"Sputnik moment\" in a post on X on Sunday. The term references the Soviet Union's 1957 launch of Sputnik, which marked the start of 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,\" he said in a separate post.
In Europe, shares of companies involved in AI also suffered. ASML, which counts the Taiwan region's TSMC, Intel, and Samsung as customers, dropped nearly 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.
Major technology firms have been ramping up spending on developing AI capabilities, with optimism over potential returns driving 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 its constituents' earnings, according to LSEG data.
\"The market is starting to question the capital expenditure spending of the major tech companies,\" said Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore.
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,\" Ichikawa added.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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