DeepSeek's 'Sputnik Moment' Shakes Global AI Market, Tech Stocks Plummet
Investors worldwide witnessed a sharp decline in technology stocks on Monday as the emergence of a low-cost artificial intelligence model from the Chinese mainland's DeepSeek cast doubts on Western companies' dominance in the sector. Major players like Nvidia and Oracle saw significant drops in their share prices, with Nvidia falling 10% and Oracle dropping 8% in pre-market trading.
Last week, startup DeepSeek launched a free AI assistant it claims operates using less data at a fraction of the cost of incumbent models. This development potentially marks a turning point in the level of investment required for AI, prompting investors to reassess the value of heavily funded Western AI companies.
Futures on the Nasdaq 100 slid almost 4%, suggesting the index could experience its most substantial daily decline since September 2022 if losses persist. Shares in AI data analytics company Palantir also lost 7% in pre-market trading.
DeepSeek's assistant quickly overtook U.S. rival ChatGPT in downloads on the Apple Store, offering the prospect of a viable, cost-effective AI alternative. This development has raised questions about the sustainability of the massive investments in AI by Western companies, including Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled. \"We still don't know the details and nothing has been 100% 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 figure, this is very positive for productivity and AI end-users, as the cost of access is obviously much lower.\"
The hype around AI has fueled a substantial inflow of capital into equity markets over the past 18 months, inflating company valuations and propelling stock markets to record highs. Nvidia alone has risen by over 200% during this period and trades at 56 times the value of its earnings.
'Sputnik Moment'
Marc Andreessen, the Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the Soviet Union's 1957 launch of the Sputnik satellite that marked the start of 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 posted on X.
In Europe, semiconductor equipment maker ASML, which counts Taiwan Semiconductor Manufacturing Company (TSMC), Intel, and Samsung as its customers, dropped almost 11%. In Japan, startup investor SoftBank Group slid more than 8%; last week, it announced a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
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, added, \"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.\"
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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