LONDON/SINGAPORE: Investors made a quick exit from a host of technology stocks from Tokyo to New York on Monday as the emergence of a low-cost Chinese artificial intelligence model challenged the dominance of current AI leaders such as Nvidia (NVDA.O), opens new tab.
Raising questions about the level of investment needed for AI, startup DeepSeek launched a free AI assistant last week that it says uses less data at a fraction of the cost of incumbent services.
And by Monday DeepSeek’s assistant had overtaken U.S. rival ChatGPT in downloads from Apple’s app store.
The news led Nasdaq (.IXIC), opens new tab to open down more than 3%. The tech-heavy index has since pared losses but was still down 2.9% at midday, with leading AI chipmaker Nvidia (NVDA.O), opens new tab its biggest drag with a loss of more than 15%.
The Nasdaq’s next biggest drag was chip maker Broadcom Inc (AVGO.O), opens new tab, down 15%, followed by Microsoft (MSFT.O), opens new tab, off 3.7%, and Google parent Alphabet (GOOGL.O), opens new tab, which fell 2.7%.
The Philadelphia semiconductor index (.SOX), opens new tab tumbled 7.9%, eyeing its biggest percentage drop since March 2020. Their declines followed a sell-off that started in Asia, with Japan’s SoftBank Group (9984.T), opens new tab finishing down 8.3%, and moved through Europe where ASML (ASML.AS), opens new tab fell 7.6%.
“If it’s true that DeepSeek is the proverbial ‘better mousetrap,’ that could disrupt the entire AI narrative that has helped drive the markets over the last two years,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.
“It could mean less demand for chips, less need for a massive build-out of power production to fuel the models, and less need for large-scale data centers. However, it could also mean that AI becomes more accessible and help kickstart the development of a wide array of useful applications,” Jacobsen said.
The hype around AI has powered a huge inflow of capital into the equity markets in the last 18 months, as investors bought into the technology, which inflated company valuations and lifted stock markets to new highs.
On Wednesday U.S. AI-related stocks rallied after President Donald Trump announced a private-sector plan for what he said would be a $500 billion investment in AI infrastructure through a joint venture known as Stargate.
Since then SoftBank has announced a $19 billion commitment to help fund the Stargate joint venture with companies including OpenAI and Oracle , whose shares were down 7.8% on Monday.
U.S.-traded shares in ASML, which counts Taiwan’s TSMC (2330.TW), opens new tab, Intel (INTC.O), opens new tab and Samsung (005930.KS), opens new tab as its customers, dropped more than 6%. In Europe energy technology company Siemens Energy (ENR1n.DE), opens new tab lost 19%.
Little is known about the small Hangzhou startup behind DeepSeek. Its researchers wrote in a paper last month the DeepSeek-V3 model, launched on Jan. 10, used Nvidia’s H800 chips for training, spending less than $6 million – the figure referenced by Pictet’s Withaar.
H800 chips are not top of the line. Initially developed as a reduced-capability product to get around curbs on sales to China, they were subsequently banned by U.S. sanctions.
‘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 launch of a satellite 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 separate post.
Given the volatility in equities, investors sought out safe-havens such as U.S. Treasuries. This pushed 10-year yields down to 4.55% while currencies like Japan’s yen and the Swiss franc rallied against the dollar.
Big Tech has ramped up spending on developing AI capabilities and optimism over the possible returns has driven stock valuations sky-high.
Shares in Nvidia are down more than 7% for the year to date but the stock rose 171% in 2024 and 239% in 2023 to trades at 56 times the value of its earnings.
In comparison the Nasdaq (.IXIC), opens new tab trades at a multiple of 16 to the value of its constituents’ earnings, LSEG data showed.
Among other stocks, Vertiv Holdings (VRT.N), opens new tab, which builds data center infrastructure, slumped 27%.
Power utilities, expected to benefit from a surge in demand from power-hungry data centers needed to develop AI technology, also tumbled. Vistra (VST.N), opens new tab shares were down 24.4% while Constellation Energy (CEG.O), opens new tab shares were off more than 18% and NRG Energy (NRG.N), opens new tab fell 13%.
Startup DeepSeek introduced a free AI assistant last week, claiming it uses significantly less data at a fraction of the cost of existing services. By Monday, DeepSeek’s assistant had surpassed U.S. rival ChatGPT in downloads on Apple’s app store. Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
