Investors Sell Off Big Tech as China's DeepSeek Unveils Breakthrough AI Model
Global technology stocks tumbled on Monday as investors reacted to the emergence of a low-cost artificial intelligence model from Chinese startup DeepSeek. The company's new AI assistant reportedly operates using significantly less data and at a fraction of the cost of existing models, raising concerns about the dominance of established Western AI players.
DeepSeek's recent launch has been met with substantial interest, with the assistant surpassing U.S. rival ChatGPT in downloads on the Apple Store by Monday. The prospect of a viable, more affordable AI alternative has prompted investors to reassess the sustainability of high levels of spending and investment in AI by Western tech giants such as Apple and Microsoft.
Futures on the Nasdaq 100 slid almost four percent, hinting at a potential significant decline in the index. 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. From Tokyo to Amsterdam, shares in AI-related companies experienced substantial losses.
Jon Withaar, a senior portfolio manager at Pictet Asset Management, commented, \\"If there truly has been a breakthrough in the cost to train models from $100 million-plus 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.\\"
'Sputnik Moment' for AI
Silicon Valley venture capitalist Marc Andreessen 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. He stated, \\"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.\\"
The excitement around AI has fueled massive inflows of capital into equity markets over the past 18 months, with investors driving up valuations and propelling stock markets to record highs. Big Tech companies have significantly increased spending on developing AI capabilities, anticipating substantial returns.
However, the emergence of DeepSeek's cost-effective model is causing markets to question the capital expenditures of major tech firms. Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, noted the market's skepticism regarding the spending levels of these companies.
In Europe, shares of semiconductor equipment maker ASML, which counts Taiwan's TSMC, Intel, and Samsung as customers, dropped almost 11 percent. In Japan, SoftBank Group fell more than eight percent after recently announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, expressed caution, saying, \\"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
cgtn.com
