Investors around the globe are reevaluating their positions in major artificial intelligence companies following the emergence of a low-cost Chinese AI model developed by startup DeepSeek. On Monday, technology stocks experienced significant declines, with industry giants like Nvidia and Oracle seeing their shares plummet.
DeepSeek introduced a free AI assistant last week, claiming it operates using less data and at a fraction of the cost compared to existing models from established players. This development is being regarded as a potential turning point in the AI industry, raising questions about the sustainability of high levels of investment by Western companies.
The impact on the stock market was immediate. Futures on the Nasdaq 100 dropped nearly four percent, indicating the index could face its most significant daily decline since September 2022 if the losses persist. The S&P 500 futures fell by two percent. Nvidia's shares fell by 10 percent, Oracle's by eight percent, and AI data analytics firm Palantir saw a seven percent decline in pre-market trading.
DeepSeek's assistant swiftly overtook U.S. rival ChatGPT in Apple Store downloads by Monday, offering a viable and more affordable AI alternative. This surge has prompted investors to question the long-term investment strategies of Western technology companies, including Apple and Microsoft, in the AI sector.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled. 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 the alleged $6 million, this is very positive for productivity and AI end users, as the cost of access would be significantly lower.\"
The enthusiasm surrounding AI has fueled substantial capital inflows into equity markets over the past 18 months. Investors have been eager to capitalize on the technology, inflating company valuations and pushing stock markets to record highs.
'Sputnik Moment' in AI
Silicon Valley venture capitalist Marc Andreessen described DeepSeek's R1 model as AI's \"Sputnik moment,\" a reference to the Soviet Union's launch of the Sputnik satellite in the late 1950s, which marked the beginning of the space race. Andreessen stated, \"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.\"
In Europe, semiconductor equipment manufacturer ASML, which counts TSMC from the Taiwan region, Intel, and Samsung among its customers, saw its shares drop nearly 11 percent. In Japan, startup investor SoftBank Group fell more than eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Major technology companies have significantly increased spending on developing AI capabilities, with optimism about potential returns driving stock valuations to unprecedented levels. Nvidia's stock has risen over 200 percent in approximately 18 months and trades at 56 times its earnings value, compared to the Nasdaq's 53 percent rise and a multiple of 16 times earnings, according to LSEG data.
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.\"
Ichikawa cautioned, \"I think it might be a bit premature.\"
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
