Global technology stocks experienced a sharp decline on Monday as investors reacted to the emergence of DeepSeek, a Chinese artificial intelligence startup that unveiled a low-cost AI model. The breakthrough prompted a sell-off of major AI players, casting doubt on the dominance of Western companies in the sector.
Last week, DeepSeek launched an AI assistant that it claims operates using significantly less data and at a fraction of the cost compared to existing models from established firms. This development has been seen as a potential turning point in the AI industry, challenging the hefty investments made by leading tech giants.
Futures on the Nasdaq 100 dropped nearly 4%, signaling the possibility of the index experiencing its most substantial daily decline since September 2022. The S&P 500 futures also fell by 2%. Shares of AI chipmaker Nvidia plummeted by 10%, Oracle fell 8%, and AI data analytics company Palantir saw a 7% decrease in pre-market trading.
DeepSeek's AI assistant quickly gained traction, surpassing U.S. rival ChatGPT in downloads on the Apple Store by Monday. The startup offers a viable and more affordable AI alternative, raising questions about the sustainability of the substantial spending by Western companies like Apple and Microsoft on AI development.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled amid concerns over the shift in the AI landscape.
\"We still don't know the details and nothing has been 100% 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, it's actually very positive for productivity and AI end users, as the cost of access is obviously much lower.\"
'Sputnik Moment' in AI
Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the Soviet Union's 1957 launch of the Sputnik 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 said in a post on social media platform X.
In Europe, shares of ASML Holding, a key supplier to major chipmakers like Taiwan's TSMC, Intel, and Samsung, dropped almost 11%. In Japan, SoftBank Group, an investor in tech startups, slid more than 8% following its recent announcement of a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Major technology companies have been rapidly increasing their investment in AI capabilities, with optimism about potential returns driving their stock valuations to new heights. Nvidia's stock has risen over 200% in the past 18 months, trading at 56 times its earnings, significantly higher than the Nasdaq average.
\"The market is questioning the capital expenditure 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, \"There's concern that the perspective of American technologies like Nvidia and ChatGPT being the most superior globally 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
cgtn.com
