Investors Sell Major AI Firms Following DeepSeek's "Sputnik moment"
On Monday, technology stocks faced a significant decline, with Nvidia and Oracle experiencing sharp drops. This downturn was fueled by concerns surrounding a new low-cost Chinese artificial intelligence model, which raised questions about the dominance of Western companies in the industry.
TroibNews 
Technology stocks faced a significant downturn on Monday, with major companies like Nvidia and Oracle experiencing sharp declines, driven by the recent emergence of a low-cost artificial intelligence model from Chinese startup DeepSeek that raises questions about the dominance of Western firms in this arena.
DeepSeek introduced a free assistant last week, claiming it operates with less data and at a substantially reduced cost compared to existing models from established players. This development could signal a shift in the investment landscape for AI technologies.
Futures for the Nasdaq 100 dropped nearly four percent, indicating that the index could be on track for its largest single-day decline since September 2022 if these losses persist. Meanwhile, futures on the S&P 500 decreased by two percent. In pre-market trading, Nvidia's shares saw a 10 percent decline, while Oracle's stock fell by eight percent, and Palantir, an AI data analytics firm, dropped by seven percent.
By Monday, DeepSeek had surpassed its U.S. competitor ChatGPT in download rankings on the Apple Store, presenting a potentially viable and more affordable AI alternative and raising concerns about the ongoing investment levels in AI by major Western firms like Apple and Microsoft.
From Tokyo to Amsterdam, shares of various AI companies suffered losses.
Jon Withaar, a senior portfolio manager at Pictet Asset Management, noted, "We still don't know the details and nothing has been 100 percent confirmed in regards to the claims, but if there truly has been a breakthrough in the cost to train models from $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."
The excitement surrounding AI has led to a substantial influx of capital in equity markets over the past 18 months, significantly inflating valuations and pushing stock markets to unprecedented highs.
Marc Andreessen, a prominent Silicon Valley venture capitalist, referred to DeepSeek's R1 model as AI's "Sputnik moment" in a post on X, drawing parallels to the Soviet Union's 1950s launch of a 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 added in a separate post.
In Europe, shares of ASML, a company with clients including TSMC, Intel, and Samsung, fell nearly 11 percent. In Japan, SoftBank Group, which invests in startups, saw a decline of more than eight percent following its announcement of a $19 billion investment in Stargate, a data-center joint venture with OpenAI.
Big Tech has significantly increased its investments in AI development, with high expectations regarding potential returns leading to soaring stock valuations.
Nvidia's stock price has more than doubled in roughly 18 months, currently trading at 56 times its earnings, while the Nasdaq has risen 53 percent, trading at a multiple of 16 times the earnings of its constituents, according to LSEG data.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, pointed out that the market is beginning to scrutinize the capital expenditure strategies of major tech firms.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, expressed concerns that the prevailing notion of U.S. cutting-edge technologies like Nvidia and ChatGPT being the most advanced globally might be shifting, stating, "I think it might be a bit premature."
Rohan Mehta for TROIB News
DeepSeek introduced a free assistant last week, claiming it operates with less data and at a substantially reduced cost compared to existing models from established players. This development could signal a shift in the investment landscape for AI technologies.
Futures for the Nasdaq 100 dropped nearly four percent, indicating that the index could be on track for its largest single-day decline since September 2022 if these losses persist. Meanwhile, futures on the S&P 500 decreased by two percent. In pre-market trading, Nvidia's shares saw a 10 percent decline, while Oracle's stock fell by eight percent, and Palantir, an AI data analytics firm, dropped by seven percent.
By Monday, DeepSeek had surpassed its U.S. competitor ChatGPT in download rankings on the Apple Store, presenting a potentially viable and more affordable AI alternative and raising concerns about the ongoing investment levels in AI by major Western firms like Apple and Microsoft.
From Tokyo to Amsterdam, shares of various AI companies suffered losses.
Jon Withaar, a senior portfolio manager at Pictet Asset Management, noted, "We still don't know the details and nothing has been 100 percent confirmed in regards to the claims, but if there truly has been a breakthrough in the cost to train models from $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."
The excitement surrounding AI has led to a substantial influx of capital in equity markets over the past 18 months, significantly inflating valuations and pushing stock markets to unprecedented highs.
Marc Andreessen, a prominent Silicon Valley venture capitalist, referred to DeepSeek's R1 model as AI's "Sputnik moment" in a post on X, drawing parallels to the Soviet Union's 1950s launch of a 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 added in a separate post.
In Europe, shares of ASML, a company with clients including TSMC, Intel, and Samsung, fell nearly 11 percent. In Japan, SoftBank Group, which invests in startups, saw a decline of more than eight percent following its announcement of a $19 billion investment in Stargate, a data-center joint venture with OpenAI.
Big Tech has significantly increased its investments in AI development, with high expectations regarding potential returns leading to soaring stock valuations.
Nvidia's stock price has more than doubled in roughly 18 months, currently trading at 56 times its earnings, while the Nasdaq has risen 53 percent, trading at a multiple of 16 times the earnings of its constituents, according to LSEG data.
Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore, pointed out that the market is beginning to scrutinize the capital expenditure strategies of major tech firms.
Masahiro Ichikawa, chief market strategist at Sumitomo Mitsui DS Asset Management, expressed concerns that the prevailing notion of U.S. cutting-edge technologies like Nvidia and ChatGPT being the most advanced globally might be shifting, stating, "I think it might be a bit premature."
Rohan Mehta for TROIB News
