Investors worldwide reacted swiftly on Monday as technology stocks faced significant declines following the emergence of DeepSeek's new low-cost artificial intelligence model. Major players like Nvidia and Oracle saw their shares plummet, casting doubt on Western companies' dominance in the AI sector.
Chinese startup DeepSeek launched a free AI assistant last week, claiming it requires less data and operates at a fraction of the cost compared to existing models. This development has been hailed as a potential turning point in AI investment, challenging the heavy spending by established Western tech giants.
Futures on the Nasdaq 100 dropped nearly four percent, signaling a possible major slide for the index. Nvidia's shares fell by 10 percent, Oracle dropped eight percent, and AI data analytics company Palantir lost seven percent in pre-market trading. The ripple effect was felt from Tokyo to Amsterdam as shares in AI-focused companies tumbled.
\"We still don't know all the details, but if there's truly been a breakthrough reducing training costs from over $100 million to around $6 million, it's very positive for productivity and AI users,\" said Jon Withaar, a senior portfolio manager at Pictet Asset Management. \"Lower costs mean greater accessibility.\"
DeepSeek Overtakes Rivals
By Monday, DeepSeek had surpassed U.S. competitor ChatGPT in downloads on the Apple Store. The prospect of a viable, cost-effective AI alternative has raised questions about the sustainability of the massive investments poured into AI development by companies like Apple and Microsoft.
Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment\" in a post on X (formerly Twitter). \"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 stated.
Impact on Global Markets
The news sent shockwaves through global markets. In Europe, ASML—a company supplying major chipmakers like TSMC, Intel, and Samsung—saw its shares drop almost 11 percent. In Japan, SoftBank Group, which recently announced a $19 billion investment in a data-center joint venture with OpenAI, slid more than eight percent.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, commented on the market's reaction: \"There's a growing skepticism about the capital expenditure of major tech companies. Investors are questioning whether these levels of spending are justified in light of new developments.\"
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, added, \"The idea that America's cutting-edge technologies are the most superior globally is being challenged. However, it might be a bit premature to draw conclusions.\"
The AI hype has fueled massive capital inflows into equity markets over the past 18 months, inflating company valuations and pushing stock markets to record highs. Nvidia alone has risen over 200 percent during this period, trading at 56 times its earnings value.
As DeepSeek's influence grows, industry observers anticipate significant shifts in the global AI landscape. The accessibility and affordability of AI technology could democratize the field, fostering innovation across diverse sectors and regions.
Reference(s):
DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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