DeepSeek's 'Sputnik Moment' Triggers Sell-Off in Major AI Stocks
Investors reacted strongly on Monday, sending technology stocks tumbling as the emergence of a low-cost Chinese artificial intelligence (AI) model cast doubts on Western companies' dominance in the sector.
Chinese startup DeepSeek last week launched a free AI assistant that claims to use less data at a fraction of the cost of incumbent models. This development potentially marks a turning point in the investment landscape for AI.
Futures on the Nasdaq 100 slid almost four percent, suggesting the index could experience its biggest daily drop since September 2022 if losses persist. Futures on the S&P 500 dropped two percent. Shares in AI chipmaker Nvidia fell 10 percent, rival Oracle dropped eight percent, while AI data analytics company Palantir lost seven percent in pre-market trading.
By Monday, DeepSeek had overtaken U.S. rival ChatGPT in downloads on the Apple Store, offering a viable and cheaper AI alternative. This has raised questions about the sustainability of high levels of spending and investment on AI by Western companies, including Apple and Microsoft.
Read more: DeepSeek tops iPhone app store charts: What does it mean?
From Tokyo to Amsterdam, shares in AI-focused companies tumbled.
\"We still don't know the details, and nothing has been 100 percent 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 is very positive for productivity and AI end users, as the lower cost means greater access.\"
'Sputnik Moment' for AI
Silicon Valley venture capitalist Marc Andreessen described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the former Soviet Union's launch of a satellite that marked the start of the space race in the late 1950s.
\"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 posted on social media platform X on Sunday.
In Europe, shares of semiconductor equipment maker ASML, which counts Taiwan Semiconductor Manufacturing Company (TSMC), Intel, and Samsung as customers, dropped almost 11 percent. In Japan, startup investor SoftBank Group slid more than eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Big Tech companies have been ramping up spending on developing AI capabilities, with optimism over potential returns driving stock valuations to historic highs.
Nvidia alone has risen over 200 percent in about 18 months and trades at 56 times its earnings, compared with a 53 percent rise in the Nasdaq, which trades at a multiple of 16 times its constituents' earnings, according to data from LSEG.
\"The market is questioning the capital expenditure 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, commented, \"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,\" Ichikawa added.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
