Investors across the globe are reassessing their positions in major technology stocks after the emergence of DeepSeek's groundbreaking low-cost artificial intelligence model. On Monday, shares of industry giants like Nvidia and Oracle plummeted, casting doubt on Western companies' long-held dominance in the AI sector.
Startup DeepSeek unveiled a free AI assistant last week, boasting the use of less data at a fraction of the cost compared to existing models. This development could signify a pivotal shift in the AI landscape, questioning the substantial investments previously deemed necessary for AI advancement.
Futures on the Nasdaq 100 dropped nearly four percent, indicating a potential significant downturn for the index, the largest since September 2022 if trends continue. The S&P 500 futures fell two percent. Nvidia's shares decreased by 10 percent, Oracle saw an eight percent decline, and AI data analytics firm Palantir lost seven percent in pre-market trading.
DeepSeek's assistant has rapidly gained popularity, surpassing U.S. rival ChatGPT in Apple Store downloads by Monday. The assistant's affordability and viability have prompted a reevaluation of the sustainability of massive AI investments by Western tech leaders like Apple and Microsoft.
Read more: DeepSeek tops iPhone app store charts: What does it mean?
From Tokyo to Amsterdam, AI-related shares experienced significant declines.
\"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 over $100 million to this alleged $6 million, it's very positive for productivity and AI end-users,\" said Jon Withaar, a senior portfolio manager at Pictet Asset Management. \"The cost is obviously much lower, meaning lower cost of access.\"
The fervor surrounding AI has driven substantial capital inflows into equity markets over the past 18 months, inflating company valuations and pushing stock markets to record highs.
'Sputnik Moment'
Marc Andreessen, a prominent Silicon Valley venture capitalist, referred to DeepSeek's R1 model as AI's \"Sputnik moment\" in a post on X (formerly Twitter) on Sunday, alluding to the Soviet Union's 1957 satellite launch 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 commented in a separate post.
In Europe, shares of companies like ASML—supplier to Taiwan's TSMC, Intel, and Samsung—dropped almost 11 percent. In Japan, SoftBank Group, an investor in startups, slid more than eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
The major tech firms have significantly increased spending on AI development, with optimism about potential returns driving stock valuations to skyrocket. Nvidia's stock alone has surged over 200 percent in about 18 months and trades at 56 times its earnings value.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, noted that the market is scrutinizing the capital expenditures of major tech companies. \"There's a reassessment of whether the high levels of spending are justified given new developments,\" he said.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, observed, \"The idea that the most cutting-edge technologies in America 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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