Investors took significant action on Monday, leading to a sharp decline in major technology stocks such as Nvidia and Oracle. This market reaction was triggered by the introduction of DeepSeek's new artificial intelligence model, which offers a cost-effective alternative to existing Western AI solutions.
DeepSeek, a rising startup, launched a free AI assistant last week that reportedly uses less data and costs a fraction of what current market leaders require. This development has raised questions about the sustainability of the high levels of investment in AI by Western companies like Apple and Microsoft.
As a result of DeepSeek's announcement, futures on the Nasdaq 100 fell nearly four percent, hinting at what could be the index's most significant daily drop since September 2022 if the losses persist. The S&P 500 also saw a decline of two percent. Notably, shares of AI chipmaker Nvidia plummeted by ten percent, Oracle by eight percent, and AI data analytics firm Palantir by seven percent in pre-market trading.
DeepSeek quickly gained traction, surpassing the U.S. rival ChatGPT in downloads on the Apple Store by Monday. This achievement highlights the potential of a more affordable AI alternative, prompting investors to reconsider the heavy spending and investment strategies of Western AI companies.
'Sputnik Moment' in AI
Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment\"—a reference to the Soviet Union's pivotal satellite launch that ignited the space race in the late 1950s. Andreessen praised the model as one of the most impressive breakthroughs in AI, especially notable for being open source.
The impact of DeepSeek's innovation was felt globally. In Europe, shares of ASML, which counts Taiwan's TSMC, Intel, and Samsung as customers, dropped by almost eleven percent. In Japan, SoftBank Group shares fell more than eight percent following its recent announcement of a $19 billion investment in a data-center joint venture with OpenAI.
The surge of capital into AI over the past eighteen months has driven company valuations to new heights. Nvidia, for instance, has seen its stock rise by over 200 percent during this period, trading at a price-to-earnings ratio significantly higher than the Nasdaq's average.
Experts like Jon Withaar of Pictet Asset Management view DeepSeek's breakthrough positively, suggesting that reducing the cost to train AI models can enhance productivity and make AI more accessible to end users. However, others, such as Masahiro Ichikawa of Sumitomo Mitsui DS Asset Management, caution that it may be premature to assume a shift in the global AI leadership just yet.
As the AI landscape continues to evolve, DeepSeek's advancements may signal a new era of competition and innovation, challenging the established dominance of Western technology giants.
Reference(s):
DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
