Investors worldwide are reassessing their stakes in technology stocks as a significant sell-off on Monday saw industry giants like Nvidia and Oracle experience sharp declines. The catalyst behind this market upheaval is the emergence of DeepSeek, a Chinese startup that has introduced a low-cost artificial intelligence (AI) model, challenging the dominance of Western companies 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 established players. This development marks a potential turning point in the AI industry, questioning the vast level of investment currently required for AI development and deployment.
In response to DeepSeek's announcement, futures on the Nasdaq 100 dropped nearly four percent, indicating a possible significant downturn for the index. Major tech stocks were not spared: AI chipmaker Nvidia saw its shares fall by 10 percent, Oracle dropped eight percent, and AI data analytics company Palantir lost seven percent in pre-market trading.
DeepSeek's AI assistant has rapidly gained popularity, overtaking U.S. rival ChatGPT in downloads on the Apple Store. The prospect of a viable and cheaper AI alternative has raised concerns about the sustainability of the substantial spending and investment in AI by Western companies, including tech giants like Apple and Microsoft.
\"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 hype 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 alone has surged over 200 percent during this period, trading at 56 times its earnings value, according to LSEG data.
'Sputnik Moment' for AI
Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the Soviet Union's launch of the first artificial satellite in the 1950s, which ignited 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 stated.
Around the globe, shares in AI-related companies tumbled. In Europe, ASML Holding, which supplies advanced machinery to chipmakers like TSMC, Intel, and Samsung, dropped almost 11 percent. In Japan, SoftBank Group, a startup investor, slid more than eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Market analysts suggest that DeepSeek's innovation is causing investors to question the capital expenditure of major tech companies. \"The market is rethinking the massive capex 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, added, \"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. I think it might be a bit premature.\"
As the AI landscape shifts, businesses and investors will be closely watching how these developments unfold, potentially reshaping investment strategies and technological advancements in the AI sector.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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