Investors pummeled major technology stocks on Monday as the emergence of a low-cost Chinese artificial intelligence (AI) model from startup DeepSeek cast doubts over Western companies' dominance in the sector.
DeepSeek's recent launch of a free AI assistant, which reportedly uses less data at a fraction of the cost compared to incumbent models, has been described as a potential game-changer in the AI landscape. The development has prompted investors to reassess the heavy investments poured into AI by Western tech giants.
Futures on the Nasdaq 100 dropped nearly 4%, indicating the index could face its most significant daily decline since September 2022 if losses persist. Shares of AI chipmaker Nvidia fell 10%, rival Oracle dropped 8%, and AI data analytics firm Palantir lost 7% in pre-market trading.
DeepSeek, which by Monday had surpassed U.S. competitor ChatGPT in downloads on the Apple Store, offers a viable and more affordable AI alternative. This advancement has raised questions about the sustainability of the substantial spending by companies like Apple and Microsoft on AI development.
Read more: DeepSeek tops iPhone app store charts: What does it mean?
From Tokyo to Amsterdam, shares in AI-focused companies experienced significant declines.
\"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 the cost is obviously much lower meaning lower cost of access,\" said Jon Withaar, a senior portfolio manager at Pictet Asset Management.
'Sputnik Moment' for AI
Silicon Valley venture capitalist Marc Andreessen referred to DeepSeek's R1 model as AI's \\"Sputnik moment,\\" alluding to the Soviet Union's 1957 launch of the Sputnik satellite 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 stated on social media platform X.
In Europe, semiconductor equipment maker ASML, which counts clients such as TSMC, Intel, and Samsung, dropped almost 11%. In Japan, startup investor SoftBank Group slid more than 8% following its announcement of a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
The rapid advancements by DeepSeek have led to a reevaluation of capital expenditures among major tech companies heavily invested in AI. \\"The market is questioning the capital 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 concerns about the shifting perception of technological leadership: \\"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.\\"
The hype surrounding AI has fueled massive capital inflows into equity markets over the past 18 months, inflating company valuations and propelling stock markets to record highs. Nvidia's stock alone has risen by over 200% during this period, trading at 56 times the value of its earnings, compared to a 53% rise in the Nasdaq, which trades at a multiple of 16 times its constituents' earnings.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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