Investors took a significant hit on Monday as technology stocks plummeted in response to the emergence of DeepSeek's new artificial intelligence model. The market downturn saw giants like Nvidia and Oracle experiencing substantial declines, raising concerns about the dominance of Western companies in the AI sector.
DeepSeek, a rising startup, launched a free assistant last week that reportedly uses less data and operates at a fraction of the cost of existing models from established players. This development may signal a pivotal moment in the investment landscape for AI, as it challenges the high capital requirements traditionally associated with AI advancements.
Futures on the Nasdaq 100 fell nearly four percent, indicating a potential for the index to experience its largest daily drop since September 2022 if these losses continue. Similarly, the S&P 500 saw a two percent decline. Shares of AI chipmaker Nvidia dropped 10 percent, while Oracle fell eight percent and AI data analytics company Palantir lost seven percent in pre-market trading.
DeepSeek's R1 model has already surpassed ChatGPT in Apple Store downloads, offering a more affordable AI alternative. This development has prompted investors to question the sustainability of the high levels of spending and investment in AI by Western firms, including Apple and Microsoft.
\"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,\" said Jon Withaar, a senior portfolio manager at Pictet Asset Management.
The surge in AI enthusiasm over the past 18 months has led to a massive influx of capital into the equity markets, driving company valuations and pushing stock markets to record highs. Nvidia alone has seen its stock rise by over 200 percent in approximately 18 months, trading at 56 times its earnings value compared to the Nasdaq's 53 percent rise at a multiple of 16.
Marc Andreessen, a prominent Silicon Valley venture capitalist, referred to DeepSeek's R1 model as AI's \"Sputnik moment.\" He praised it as one of the most impressive breakthroughs he has witnessed and highlighted its open-source nature as a significant contribution to the global community.
In Europe, ASML, which serves major companies including TSMC, Intel, and Samsung, saw its shares drop nearly 11 percent. In Japan, SoftBank Group's shares fell more than eight percent following the announcement of a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Experts are now re-evaluating the capital expenditure strategies of major tech companies. Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, noted that the market is questioning the sustainability of the substantial investments made by leading tech firms.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, added, \"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.\"
Despite the concerns, Ichikawa believes it might be premature to draw definitive conclusions about the long-term impact of DeepSeek's advancements.
Reference(s):
DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
