Investors are re-evaluating their stakes in major AI companies as startup DeepSeek introduces a cost-effective artificial intelligence model. This development has led to significant declines in technology stocks, including Nvidia and Oracle.
Last week, DeepSeek launched a free assistant claiming to use less data at a fraction of the cost compared to existing models. This move may signify a pivotal change in investment requirements for AI technologies.
Futures on the Nasdaq 100 fell almost four percent, indicating a potential for the largest daily drop since September 2022. The S&P 500 futures decreased by two percent. Shares of AI chipmaker Nvidia fell 10 percent, rival Oracle dropped eight percent, and AI data analytics company Palantir slid seven percent in pre-market trading.
DeepSeek has surpassed U.S. competitor ChatGPT in Apple Store downloads, suggesting a viable and more affordable alternative in the AI space. This raises questions about the sustainability of AI investment levels by Western companies, including Apple and Microsoft.
Market impacts are being felt globally, with AI stocks declining from Tokyo to Amsterdam. Jon Withaar, a senior portfolio manager at Pictet Asset Management, stated, \"If there truly has been a breakthrough in the cost to train models from $100 million+ to this alleged $6 million number, this is very positive for productivity and AI end users.\"
The surge in AI enthusiasm has driven substantial capital into equity markets over the past 18 months, inflating company valuations and pushing stock markets to record highs.
'Sputnik moment'
Silicon Valley venture capitalist Marc Andreessen referred to DeepSeek's R1 model as AI's \"Sputnik moment,\" likening it to the Soviet Union's satellite launch that ignited the space race in the 1950s.
In Europe, ASML, which counts Taiwan region's TSMC, Intel, and Samsung as its customers, saw its shares drop nearly 11 percent. In Japan, SoftBank Group's shares fell over eight percent following its announcement of a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Big Tech's increased spending on AI capabilities, driven by optimistic return projections, has elevated stock valuations significantly. Nvidia alone has seen a 200 percent rise in about 18 months, trading at 56 times its earnings. In contrast, the Nasdaq has risen 53 percent, trading at a multiple of 16 to the value of its constituents' earnings, based on LSEG data.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, noted that the market is scrutinizing the capital expenditure of major tech firms. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, expressed concerns that the perceived superiority of American technologies like Nvidia and ChatGPT might begin to shift globally.
\"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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