Investors Sell Off Major AI Stocks as Chinese Startup DeepSeek Unveils Game-Changing Model
Global technology stocks took a significant hit on Monday as investors reacted to the emergence of DeepSeek, a Chinese artificial intelligence startup that unveiled a low-cost AI model, challenging the dominance of Western tech giants in the sector.
DeepSeek's recent launch of a free AI assistant, which reportedly operates using less data and at a fraction of the cost of existing models, has sent shockwaves through global markets. The development is being hailed as a potential turning point in AI investment, signaling that cutting-edge AI technology may no longer require the massive capital previously deemed necessary.
The impact was immediate. Futures on the Nasdaq 100 dropped nearly four percent, suggesting the index could experience its most significant daily decline since September 2022 if losses persist. The S&P 500 futures fell two percent. In pre-market trading, shares of AI chipmaker Nvidia plummeted 10 percent, rival Oracle declined eight percent, and AI data analytics firm Palantir lost seven percent.
From Tokyo to Amsterdam, the ripple effect was felt as shares in AI-focused companies tumbled. DeepSeek, which by Monday had overtaken U.S. rival ChatGPT in downloads on the Apple Store, offers a viable and cheaper AI alternative. This development has raised critical questions about the sustainability of the high levels of spending and investment on AI by Western companies, including tech leaders like Apple and Microsoft.
\"We still don't know the details and nothing has been 100 percent confirmed regarding the claims,\" said Jon Withaar, 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 number—this is actually very positive for productivity and AI end users, as cost is obviously much lower, meaning lower cost of access.\"
The hype surrounding AI has fueled massive capital inflows into equity markets over the past 18 months, inflating company valuations and sending stock markets to record highs. However, DeepSeek's advancement suggests a shift that could democratize AI technology and potentially deflate the inflated valuations of established AI players.
'Sputnik Moment' for AI
Marc Andreessen, a prominent Silicon Valley venture capitalist, took to social media to express his views on DeepSeek's breakthrough. In a post on X, he referred to DeepSeek's R1 model as AI's \"Sputnik moment,\" alluding to the Soviet Union's 1957 satellite launch that intensified 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,\" Andreessen commented.
The reactions extended beyond the U.S. In Europe, shares of ASML, whose customers include Taiwan's TSMC, Intel, and Samsung, dropped almost 11 percent. In Japan, startup investor SoftBank Group 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 develop AI capabilities, with optimism over potential returns driving stock valuations to unprecedented levels. Nvidia alone has surged over 200 percent in approximately 18 months and trades at 56 times its earnings value, far exceeding the Nasdaq's multiple of 16, according to LSEG data.
\"The market is questioning the capital expenditure spending 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 skepticism. \"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,\" 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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