Investors around the world reacted swiftly on Monday as technology stocks took a significant hit following the emergence of a low-cost Chinese artificial intelligence (AI) model. Startup DeepSeek unveiled a free AI assistant last week that claims to operate using less data at a fraction of the cost of existing models, challenging the dominance of Western companies in the sector.
The announcement has raised questions about the sustainability of the massive investments poured into AI development by tech giants. Futures on the Nasdaq 100 dropped nearly four percent, indicating potential substantial losses in the tech-heavy index. Shares of leading AI chipmaker Nvidia fell 10 percent, Oracle dropped eight percent, and AI analytics firm Palantir saw a seven percent decline in pre-market trading.
DeepSeek's assistant, which by Monday had surpassed U.S. rival ChatGPT in downloads on the Apple Store, offers a viable and more affordable AI alternative. This development has led to concerns about the future profitability of high-cost AI ventures by Western companies, including Apple and Microsoft.
From Tokyo to Amsterdam, shares in AI-focused companies tumbled. \"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 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,\" said Jon Withaar, a senior portfolio manager at Pictet Asset Management.
The enthusiasm around AI has fueled significant capital inflows into equity markets, particularly over the last 18 months, with investors driving up company valuations and propelling stock markets to record highs. The latest developments, however, suggest a potential shift in investor sentiment.
'Sputnik Moment'
Marc Andreessen, a prominent venture capitalist in Silicon Valley, described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the launch of the Soviet Union's satellite that ignited the space race in the late 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 on social media.
In Europe, shares of semiconductor equipment maker ASML, which counts Taiwan Semiconductor Manufacturing Company (TSMC), Intel, and Samsung among its customers, dropped almost 11 percent. In Japan, SoftBank Group, an investor in technology startups, slid 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 to develop AI capabilities, with optimism over potential returns driving stock valuations to lofty levels. Nvidia's stock, for example, has risen over 200 percent in about 18 months and trades at 56 times its earnings value, compared to a 53 percent rise in the Nasdaq, which trades at 16 times earnings, according to data from London Stock Exchange Group.
\"The market is questioning the capital expenditure 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, added, \"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.\"
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
