Investors across global markets are reacting sharply to the emergence of DeepSeek, a Chinese artificial intelligence (AI) startup, whose recent launch has sent shockwaves through the technology sector.
The company's free AI assistant, unveiled last week, claims to operate with significantly less data and at a fraction of the cost compared to existing models from established Western tech giants. This development is casting doubts on the dominance of major players in the AI industry and is prompting a sell-off in technology stocks.
Market Turbulence
On Monday, futures on the Nasdaq 100 slid almost four percent, indicating a potential significant downturn when markets open. Futures on the S&P 500 also dropped two percent. In pre-market trading, shares of AI chipmaker Nvidia fell 10 percent, rival Oracle dropped eight percent, and AI data analytics company Palantir lost seven percent.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled. In Europe, semiconductor equipment maker ASML, which counts TSMC, based in the Taiwan region, Intel, and Samsung as its customers, saw its shares drop almost 11 percent. In Japan, SoftBank Group, a major startup investor, slid more than eight percent after announcing a \$19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
DeepSeek's Rapid Rise
DeepSeek has quickly overtaken U.S. competitor ChatGPT in terms of downloads on the Apple Store. The startup offers a viable, cost-effective AI alternative, raising questions about the sustainability of Western companies' significant investments in AI development. Big Tech firms like Apple and Microsoft have ramped up spending on AI capabilities, and optimism over potential returns has driven stock valuations to record highs.
Industry Reactions
Marc Andreessen, a prominent Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the launch of the Soviet satellite that ignited the space race in the 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 stated in a post on X (formerly Twitter).
Market analysts are weighing in on the potential impact. Jon Withaar, a senior portfolio manager at Pictet Asset Management, commented, \"If there truly has been a breakthrough in the cost to train models from \$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.\"
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.
\"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,\" said Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management.
The Road Ahead
The hype around AI has fueled massive capital inflows into equity markets over the past 18 months, inflating company valuations and driving stock markets to unprecedented levels. Nvidia alone has risen by over 200 percent during this period and trades at 56 times the value of its earnings.
DeepSeek's emergence signals a potential shift in the AI landscape, with cost-efficient models challenging established players. As investors reassess the valuation and spending of major tech companies, the global technology sector may be poised for significant changes.
Related Article: 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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