Investors around the globe reacted swiftly on Monday as technology stocks experienced a significant sell-off. Major players like Nvidia and Oracle saw their shares plummet following the emergence of a low-cost Chinese artificial intelligence (AI) model by startup DeepSeek. The new development has cast doubts on Western companies' dominance in the AI sector.
DeepSeek, a Chinese AI startup, unveiled a free assistant last week that claims to utilize less data at a fraction of the cost of models from established competitors. This breakthrough is potentially a turning point in the AI industry, challenging the high investment levels traditionally required for AI development.
The market impact was immediate. Futures on the Nasdaq 100 dropped nearly 4%, suggesting the index could face its most significant daily decline since September 2022 if losses continue. S&P 500 futures fell by 2%. Shares of AI chipmaker Nvidia declined by 10%, Oracle dipped 8%, and AI data analytics firm Palantir decreased by 7% in pre-market trading.
DeepSeek's assistant quickly surpassed U.S. rival ChatGPT in downloads on the Apple Store by Monday. The possibility of a viable, cost-effective AI alternative has raised questions about the sustainability of heavy spending and investment by Western companies like Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled. \"We still don't know the details and nothing has been 100 percent confirmed regarding the claims,\" said Jon Withaar, 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, 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. Investors have heavily backed the technology, inflating company valuations and propelling stock markets to record highs.
'Sputnik Moment' in AI
Marc Andreessen, a prominent venture capitalist in Silicon Valley, referred to DeepSeek's R1 model as AI's \"Sputnik moment,\" alluding to the Soviet Union's 1957 launch of the first artificial satellite that 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,\" Andreessen stated on social media platform X.
The ripple effects were felt across global markets. In Europe, shares of ASML Holding, a key supplier to Taiwan Semiconductor Manufacturing Company (TSMC), Intel, and Samsung, dropped almost 11%. In Japan, SoftBank Group, a major startup investor, fell more than 8% after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Major technology firms have significantly increased their spending on AI capabilities, with optimism about potential returns driving stock valuations to lofty heights. Nvidia's stock alone has surged over 200% in the past 18 months, trading at 56 times its earnings value, according to LSEG data.
\"The market is questioning the capital expenditure spending of the major tech companies,\" noted 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.\"
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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