Investors have begun offloading technology stocks, sending major AI players like Nvidia and Oracle tumbling, following the emergence of a low-cost Chinese artificial intelligence model developed by startup DeepSeek. This development has cast doubts on Western companies' dominance in the AI sector.
DeepSeek last week launched a free assistant that it claims uses less data and operates at a fraction of the cost of incumbent models. This breakthrough may mark a turning point in the level of investment needed for AI development.
Futures on the Nasdaq 100 dropped almost four percent, suggesting the index could experience its biggest daily decline since September 2022. The S&P 500 futures fell 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.
By Monday, DeepSeek had overtaken U.S. rival ChatGPT in terms of downloads on the Apple Store. The prospect of a viable, cheaper AI alternative has raised questions about the sustainability of Western companies' heavy investment in AI, including tech giants like Apple and Microsoft.
\"From Tokyo to Amsterdam, shares in AI-focused companies tumbled,\" said Jon Withaar, a senior portfolio manager at Pictet Asset Management. \"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 around \$6 million, this is actually 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 significant inflow of capital into equity markets over the past 18 months, as investors have bet on the technology, inflating company valuations and pushing stock markets to record highs.
'Sputnik Moment'
Marc Andreessen, the Silicon Valley venture capitalist, described DeepSeek's R1 model as AI's \"Sputnik moment,\" referencing the former Soviet Union's satellite launch that marked the start of 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 said in a post on social media platform X.
In Europe, semiconductor equipment maker ASML, which counts TSMC, Intel, and Samsung as its 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 the 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.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, said the market was questioning the capital expenditure of the major tech companies. Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, added, \"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 said.
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DeepSeek's 'Sputnik moment' prompts investors to sell big AI players
cgtn.com
