Investors around the world hammered technology stocks on Monday, causing significant declines in major players like Nvidia and Oracle. This sell-off was prompted by the emergence of DeepSeek, a Chinese startup that has launched a low-cost artificial intelligence (AI) model, casting doubts on Western companies' dominance in the sector.
DeepSeek unveiled its free assistant last week, claiming it operates with less data at a fraction of the cost compared to models from incumbent players. This development may mark a turning point in the level of investment required for AI.
Futures on the Nasdaq 100 slid almost four percent, suggesting the index could experience its biggest daily drop since September 2022 if those losses hold. The S&P 500 futures dropped two percent. Shares in AI chipmaker Nvidia fell 10 percent, Oracle dropped eight percent, and AI data analytics company Palantir lost seven percent in pre-market trading.
DeepSeek, which by Monday had overtaken U.S. rival ChatGPT in downloads on the Apple Store, offers a viable and cheaper AI alternative. This has raised questions about the sustainability of the high levels of spending and investment on 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 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 $100 million-plus to this alleged $6 million number, this is actually very positive for productivity and AI end users, as the cost is obviously much lower, meaning lower cost of access.\"
The hype around AI has fueled a huge inflow of capital into equity markets over the last 18 months, as investors have bought into the technology, inflating company valuations and sending stock markets to record highs.
'Sputnik Moment'
Marc Andreessen, the Silicon Valley venture capitalist, said in a post on X on Sunday that DeepSeek's R1 model was 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,\" he said in a separate post.
In Europe, ASML, whose customers include TSMC from the Taiwan region, Intel, and Samsung, dropped almost 11 percent, while in Japan, startup investor SoftBank Group slid more than eight percent. Last week, it announced a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Big Tech has ramped up spending on developing AI capabilities, and optimism over the possible returns has driven stock valuations sky-high.
Nvidia alone has risen by over 200 percent in about 18 months and trades at 56 times the value of its earnings, compared with a 53 percent rise in the Nasdaq, which trades at a multiple of 16 to the value of its constituents' earnings, according to LSEG data.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, said the market was questioning the capital expenditure spending of the major tech companies.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, said, \"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
