Investors worldwide sold off technology stocks on Monday, as the emergence of a low-cost Chinese artificial intelligence model cast doubts on Western companies' dominance in the sector.
Startup DeepSeek last week launched a free AI assistant that it claims uses less data at a fraction of the cost of existing models, potentially marking a turning point in the investment landscape for AI.
Futures on the Nasdaq 100 slid almost four percent, suggesting the index could see its biggest daily decline since September 2022 if losses continue. 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, which by Monday had overtaken U.S. rival ChatGPT in Apple Store downloads, offers the prospect of a viable, cheaper AI alternative. This development has raised questions about the sustainability of current levels of spending and investment in AI by Western companies, including Apple and Microsoft.
Read more: DeepSeek tops iPhone app store charts: What does it mean?
From Tokyo to Amsterdam, shares in AI companies tumbled.
\"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 $100 million-plus to this alleged $6 million number, this is very positive for productivity and AI end users, as cost is obviously much lower, meaning lower cost of access.\"
The hype around AI has powered a huge inflow of capital into equity markets over the last 18 months, as investors bought into the technology, inflating company valuations and sending stock markets to record highs.
'Sputnik Moment'
Marc Andreessen, the Silicon Valley venture capitalist, said in a post on X on Sunday that DeepSeek's R1 model was AI's \"Sputnik moment,\" referencing the former Soviet Union's 1957 launch of the satellite that marked the start of 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 said in a separate post.
In Europe, ASML, which counts Taiwan's TSMC, Intel, and Samsung as customers, dropped almost 11 percent. In Japan, startup investor SoftBank Group slid more than eight percent; last week it announced a $19 billion commitment to fund Stargate, a data-center joint venture with OpenAI.
Big Tech has ramped up spending on developing AI capabilities, and optimism over possible returns has driven stock valuations sky-high.
Nvidia alone has risen by over 200 percent in about 18 months and trades at 56 times its earnings value, compared with a 53 percent rise in the Nasdaq, which trades at a multiple of 16 times the value of its constituents' earnings, according to LSEG data.
\"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, said, \"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.\"
\"I think it might be a bit premature,\" Ichikawa added.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
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