DeepSeek's 'Sputnik Moment' Sparks Global Tech Sell-Off
Investors across the globe are reevaluating their stakes in major technology companies as China's DeepSeek introduces a groundbreaking low-cost artificial intelligence model. The emergence of this model has cast doubt on Western companies' dominance in the AI sector, prompting a significant sell-off in tech stocks on Monday.
Last week, startup DeepSeek launched a free AI assistant that reportedly operates using less data at a fraction of the cost of existing models. This development is seen by many as a potential turning point in the investment landscape for AI, with the possibility of reducing the need for massive capital outlays.
Futures on the Nasdaq 100 slid almost four percent, indicating the index could experience its most substantial daily decline since September 2022. 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's AI assistant has quickly gained popularity, surpassing U.S. rival ChatGPT in downloads on the Apple Store. The assistant offers a viable, cost-effective AI alternative, raising questions about the sustainability of the heavy investment in AI by Western tech giants such as Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled. In Europe, ASML Holding, which counts Taiwan's TSMC, Intel, and Samsung among its customers, 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.
\"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 figure, this is very positive for productivity and AI end users, as it means lower cost of access.\"
The hype surrounding AI has fueled substantial capital inflows into equity markets over the past 18 months, with investors buying into the technology and inflating company valuations. This enthusiasm has driven stock markets to record highs, particularly benefiting companies like Nvidia, which has risen by over 200 percent during this period.
'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 social media platform X. The term references the former Soviet Union's 1957 launch of Sputnik, the first artificial satellite, which 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,\" Andreessen said in a separate post.
The rapid advancement of DeepSeek's technology has led to questions about the capital expenditure strategies of major tech companies. \"The market is questioning the capex spending of the major tech companies,\" said Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, noted the shifting perception of technological dominance. \"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.\"
As the AI landscape evolves with new players like DeepSeek entering the field, investors and industry leaders alike are watching closely to see how this will reshape the future of technology and investment.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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