Investors worldwide sent technology stocks tumbling on Monday as the emergence of a low-cost Chinese artificial intelligence (AI) model by startup DeepSeek cast doubts on Western companies' dominance in the sector.
DeepSeek recently launched a free AI assistant that reportedly uses less data at a fraction of the cost of incumbent players' models. This development may signal a turning point in the AI industry by lowering the investment threshold for AI development.
U.S. markets reacted sharply, with futures on the Nasdaq 100 sliding almost four percent, suggesting the index could experience its biggest daily decline since September 2022. Futures on the S&P 500 dropped two percent. Shares in AI chipmaker Nvidia fell 10 percent, Oracle dropped eight percent, and AI data analytics company Palantir lost seven percent in pre-market trading.
DeepSeek, which by Monday had overtaken U.S. rival ChatGPT in downloads on the Apple Store, offers the prospect of a viable, cheaper AI alternative. This development has raised questions about the sustainability of significant spending and investment on AI by Western companies, including Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled. Jon Withaar, a senior portfolio manager at Pictet Asset Management, commented, \"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 $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 around AI has fueled a massive inflow of capital into equity markets, particularly over the last 18 months, inflating company valuations and sending stock markets to record highs.
'Sputnik Moment'
Marc Andreessen, the Silicon Valley venture capitalist, said in a post on X on Sunday that DeepSeek's R1 model was AI's \"Sputnik moment,\" 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 said in a separate post.
In Europe, ASML, which counts TSMC from the Taiwan region, Intel, and Samsung as its customers, dropped almost 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.
Big Tech has ramped up spending on developing AI capabilities, and optimism over possible 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 to 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 was questioning the capital expenditure of major tech companies. \"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,\" added Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.
While some analysts believe it may be premature to draw conclusions, DeepSeek's emergence highlights shifting dynamics in the global AI landscape, raising questions about future investments and the balance of technological power.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
