In a startling turn of events, global technology stocks took a significant hit on Monday as investors responded to the emergence of DeepSeek, a Chinese artificial intelligence startup. The company's unveiling of a low-cost AI assistant has cast doubt on the dominance of Western tech giants, leading to a sell-off in major players like Nvidia, Oracle, and Palantir.
DeepSeek's new AI assistant, launched last week, boasts the use of less data at a fraction of the cost compared to existing models from incumbent companies. The assistant has rapidly gained popularity, surpassing U.S. rival ChatGPT in downloads on the Apple Store. This breakthrough has raised questions about the sustainability of the heavy investments made by Western firms in AI development.
Futures on the Nasdaq 100 dropped nearly four percent, indicating the potential for the index's most significant daily decline since September 2022. Nvidia shares fell by 10 percent, Oracle plummeted eight percent, and Palantir saw a seven percent decrease in pre-market trading. The ripple effect was felt globally, with AI-focused companies experiencing stock declines from Tokyo to Amsterdam.
A New Era in AI Competition
Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing 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,\" he shared on social media.
Analysts are now questioning the level of capital expenditure by major tech companies. \"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, senior portfolio manager at Pictet Asset Management. \"The cost is obviously much lower, meaning lower cost of access.\"
Global Market Implications
Investors' concerns stem from the possibility that DeepSeek's advancements could undermine the competitive edge of established AI firms. In Europe, semiconductor equipment maker ASML—whose customers include the Taiwan Semiconductor Manufacturing Company (TSMC), Intel, and Samsung—experienced an almost 11 percent drop. In Japan, SoftBank Group, a startup investor, slid more than eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
The enthusiasm around AI has previously driven massive capital inflows into equity markets, inflating company valuations and pushing stock markets to record highs. Nvidia alone has surged over 200 percent in about 18 months and trades at a multiple of 56 times its earnings.
\"The market is starting to question the capital expenditure spending of the major tech companies,\" noted Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, added, \"There's concern that the perspective of America's most cutting-edge technologies being globally superior might start to change.\"
As the AI landscape rapidly evolves, DeepSeek's emergence signals a potential shift in the global tech hierarchy. Investors and industry leaders will be closely monitoring how this development influences the future of AI innovation and investment.
Reference(s):
DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
