Investors around the globe are reassessing their stakes in major technology companies as DeepSeek, a Chinese artificial intelligence (AI) startup, introduces a groundbreaking low-cost AI model. On Monday, technology stocks took a significant hit, with industry giants like Nvidia and Oracle experiencing notable declines.
DeepSeek's recent launch of a free AI assistant, which claims to operate using less data at a fraction of the cost of existing models, has raised questions about the dominance of Western companies in the AI sector. This development may mark a turning point in the required investment levels for AI development, potentially reshaping the industry's financial landscape.
Stock futures reflected the market's apprehension, with Nasdaq 100 futures sliding almost four percent, hinting at the possibility of the index facing its most substantial daily drop since September 2022. S&P 500 futures also declined by two percent. In pre-market trading, shares of AI chipmaker Nvidia fell by 10 percent, Oracle dropped eight percent, and AI data analytics firm Palantir lost seven percent.
DeepSeek's rapid ascent was evident as it surpassed U.S. rival ChatGPT in Apple Store downloads by Monday. The startup's provision of a viable, cost-effective AI alternative is prompting investors and analysts to scrutinize the sustainability of current spending and investment levels in AI among Western corporations, including tech behemoths like Apple and Microsoft.
'Sputnik Moment'
The significance of DeepSeek's advancement was underscored by Silicon Valley venture capitalist Marc Andreessen, who referred to the company's R1 model as AI's \"Sputnik moment\" in a post on X (formerly Twitter) on Sunday. Drawing a parallel to the Soviet Union's 1950s satellite launch that ignited the space race, Andreessen remarked, \"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.\"
The ripple effect of DeepSeek's emergence was felt across global markets. From Tokyo to Amsterdam, shares in AI-focused companies tumbled. In Europe, ASML Holding, which counts the Taiwan Semiconductor Manufacturing Company (TSMC), Intel, and Samsung among its customers, saw its shares drop nearly 11 percent. In Japan, startup investor SoftBank Group slid over eight percent following its recent announcement of a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Industry experts are weighing in on the potential implications. Jon Withaar, a senior portfolio manager at Pictet Asset Management, commented, \"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 number, this is actually very positive for productivity and AI end users, as cost is obviously much lower meaning lower cost of access.\"
Nick Ferres, Chief Investment Officer at Vantage Point Asset Management in Singapore, noted that the market is questioning the capital expenditure of major tech companies. Masahiro Ichikawa, Chief Market Strategist at Sumitomo Mitsui DS Asset Management, expressed cautious optimism: \"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.\"
The enthusiasm surrounding AI has fueled significant capital inflows into equity markets over the past 18 months, with investors eager to capitalize on the technology's potential. This surge has inflated company valuations and propelled stock markets to record highs. Nvidia alone has seen its stock price rise by over 200 percent during this period and trades at 56 times the value of its earnings, compared to a 53 percent rise in the Nasdaq, which trades at a multiple of 16 times its constituents' earnings.
As DeepSeek's innovation challenges the status quo, global investors and industry leaders are closely monitoring the developments. The potential shift in AI technology's cost structure not only presents opportunities for increased accessibility but also prompts a reevaluation of investment strategies within the sector.
Read more: DeepSeek tops iPhone app store charts: What does it mean?
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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