Investors around the globe hammered technology stocks on Monday, leading to significant declines for industry giants like Nvidia and Oracle. This sell-off was prompted by the emergence of DeepSeek, a low-cost Chinese artificial intelligence (AI) model that has cast doubts on Western companies' dominance in the sector.
Last week, startup DeepSeek launched a free AI assistant that it claims uses less data and operates at a fraction of the cost of models from incumbent players. This development could mark a turning point in the level of investment needed for AI technology.
Futures on the Nasdaq 100 slid almost four percent, suggesting the index could experience its biggest daily drop since September 2022 if the losses persist. The S&P 500 futures dropped two percent. Shares in AI chipmaker Nvidia fell 10 percent, Oracle declined eight percent, and AI data analytics company Palantir lost seven percent in pre-market trading.
By Monday, DeepSeek had overtaken U.S. rival ChatGPT in terms of downloads on the Apple Store. Offering a viable and cheaper AI alternative, DeepSeek has raised questions about the sustainability of Western companies' heavy spending and investment on AI, including tech giants like Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-focused 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 number, 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, particularly over the last 18 months. 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, described DeepSeek's R1 model as AI's \"Sputnik moment\" in a post on X (formerly Twitter) on Sunday, 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 stated in a separate post.
In Europe, shares of ASML Holding, which counts among its customers TSMC from the Taiwan region, Intel, and Samsung, dropped almost 11 percent. In Japan, startup investor SoftBank Group slid more than eight percent. Last week, SoftBank 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 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 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 is questioning the capital expenditure spending of 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,\" Ichikawa added.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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