DeepSeek's "Sputnik moment" prompts investors to dump big AI players
Investors sent technology stocks like Nvidia and Oracle tumbling on Monday as the appearance of a Chinese artificial intelligence model that is low-cost cast doubts on Western firms' dominance in the sector.
Startup DeepSeek launched last week a free assistant that it claims uses less data and costs a fraction of what existing models cost. This could be a turning point for the amount of investment required in AI.
Futures for the Nasdaq 100 fell almost 4%. If these losses continue, the index may see its largest daily decline since September 2022 on Monday.
S&P 500 shares fell 2%. In pre-market trading, shares of AI chipmaker Nvidia dropped more than 11%. Oracle's rival fell 8.5%. And AI data analytics firm Palantir shed 6.5%.
DeepSeek offers a cheaper, viable AI alternative to ChatGPT, the U.S. competitor, and has already overtaken it in the Apple Store. This raises questions about whether Western companies like Apple and Microsoft can continue investing so much money and time into AI.
Shares of AI players have fallen from Tokyo to Amsterdam.
The cost of training models has dropped from $100 million to $6 million. This is a huge improvement for AI users and productivity.
Investors have flocked to the equity market in recent years, fueled by the hype surrounding AI. They are embracing the technology and driving stock markets up to new highs.
DeepSeek is a small Hangzhou-based startup that has been around for a few years. Researchers at the company wrote last month in a journal that the DeepSeek V3 model launched on January 10 used Nvidia H800 chips to train, and cost less than $6,000,000 - the amount cited by Pictet’s Withaar.
The H800 chips do not represent the best of the best. The H800 chips were initially developed to circumvent restrictions on China sales, but they were later banned by U.S. sanction.
'SPUTNIK MOMENT'
Marc Andreessen of Silicon Valley, a venture capitalist and blogger, wrote on X Sunday that DeepSeek R1 was AI's Sputnik moment, referring to the launch of a Soviet satellite in late 1950s that started the space race.
In a separate blog post, he stated that "Deepseek R1 was one of the most impressive and amazing breakthroughs I have ever seen. And as an open source project, it is a profound gift for the world."
ASML, which counts Taiwanese TSMC, Intel, and Samsung among its customers in Europe, fell by almost 7.5%. Siemens Energy dropped by nearly 18%. SoftBank Group, a Japanese startup investor, has fallen more than 8%. It announced last week a $19-billion commitment to fund Stargate – a joint venture data centre with OpenAI.
Due to the volatility of the market, investors sought safe havens like U.S. Treasuries. This pushed the 10-year yields lower by nearly 10 basis points, down to 4.52%. Meanwhile, low-yielding currency pairs such as the Japanese yen, and the Swiss Franc, rose against the dollar.
Stock prices have skyrocketed as a result of the massive spending by Big Tech on AI. The optimism about possible returns is driving stock values to new heights.
Nvidia alone is up over 200% since about 18 months. It trades for 56 times its earnings. This compares to a 53% increase in the Nasdaq which, according to LSEG, trades for 16 times its constituents earnings.
Nick Ferres is the chief investment officer of Vantage Point Asset Management, a Singapore-based asset management firm. He said that the market was questioning major tech companies' capex spending.
Masahiro Ichimawa, chief strategist of Sumitomo Mitsui DS Asset Management, said: "The idea, that the most cutting edge technologies in America like Nvidia or ChatGPT are the most superior worldwide, there is concern that this perception might start to shift."
"I think that it may be premature," said Ichikawa.
(source: Reuters)
