Global markets witnessed a seismic shift on Monday as investors offloaded shares in major technology firms, spurred by the emergence of a groundbreaking low-cost artificial intelligence model from China's DeepSeek.
The startup unveiled a free AI assistant last week, claiming it utilizes less data and operates at a fraction of the cost of established models. This development has raised questions about the dominance of Western companies in the AI sector and the sustainability of their hefty investments.
Futures on the Nasdaq 100 fell nearly four percent, signaling a potential significant drop in the index—the largest since September 2022—if losses persist. The S&P 500 futures also dipped by two percent. Notably, shares in AI chipmaker Nvidia tumbled 10 percent, Oracle declined by eight percent, and AI data analytics firm Palantir saw a seven percent decrease in pre-market trading.
DeepSeek's AI assistant, which by Monday surpassed U.S. rival ChatGPT in downloads on the Apple Store, presents a viable and more affordable AI alternative. This has led to concerns about the future of high-level spending by Western tech giants like Apple and Microsoft on AI development.
Read more: DeepSeek tops iPhone app store charts: What does it mean?
The ripple effect was felt across global markets, with shares in AI-focused companies declining from Tokyo to Amsterdam.
\"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 over $100 million to this alleged $6 million, it's very positive for productivity and AI end users, as the cost of access is obviously much lower.\"
The excitement surrounding AI has driven significant capital into equity markets, particularly over the past 18 months. Investors' enthusiasm for the technology has inflated company valuations, pushing stock markets to record highs.
'Sputnik Moment' for AI
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) on Sunday, alluding to the Soviet Union's 1957 satellite launch that ignited 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 added.
In Europe, semiconductor equipment maker ASML—whose clients include Taiwan's TSMC, Intel, and Samsung—dropped almost 11 percent. In Japan, SoftBank Group, known for its startup investments, slid more than eight percent after announcing a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Big Tech companies have been ramping up spending to enhance their AI capabilities, with optimism over potential returns driving stock valuations skyward. Nvidia alone has surged over 200 percent in approximately 18 months and trades at 56 times its earnings value, outpacing the Nasdaq's 53 percent rise.
\"The market is questioning the capital expenditure of the major tech companies,\" noted Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, expressed cautious optimism. \"The idea that the most cutting-edge technologies in America are the most superior globally—there's concern that this perspective might start to change,\" he said. \"I think it might be a bit premature.\"
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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