DeepSeek ‘Sputnik’ sparks rout in Wall Street
DeepSeek’s ‘Sputnik moment’ sparks rout in AI-linked stocks
Reuters • January 27, 2025 ~ AsiaTimes Sputnik BBC
LONDON/SINGAPORE (Reuters) -Investors hammered technology stocks on Monday, sending the likes of Nvidia and Oracle plummeting, as the emergence of a low-cost Chinese artificial intelligence model cast doubts on dominance of US companies in this sector.
Startup DeepSeek last week launched a free assistant it says uses less data at a fraction of the cost of incumbent players’ models, possibly marking a turning point in the level of investment needed for AI.
Tech-heavy Nasdaq slid 3.1%, while the S&P 500 dropped 1.8%; Nvidia stock rout sent CEO Jensen Huang’s net worth plummeting $18 billion.
Dominant AI chipmaker Nvidia slumped 11% in early trading, leading losses among heavyweight tech stocks that had powered Wall Street’s main indexes to record levels. Microsoft shares tumbled 3.8%, Meta Platforms 3.1% and Alphabet 3.3%.
DeepSeek, which by Monday had overtaken US rival ChatGPT in terms of Apple Store downloads, offers the prospect of a viable, cheaper AI alternative, raising questions on the heavy spending by US companies such as Apple and Microsoft, amid growing investor push for returns.
From Tokyo to Amsterdam, shares in AI players tumbled
“We still don’t know the details and nothing has been 100% 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,” Jon Withaar, a senior portfolio manager at Pictet Asset Management, 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, inflating company valuations and lifting stock markets to new highs.
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 US 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.
In Europe, ASML which counts Taiwan’s TSMC, Intel and Samsung as its customers, dropped almost 7.5%, while Siemens Energy lost nearly 18%.
In Japan, startup investor SoftBank Group slid more than 8%. Last week it announced a $19 billion commitment to fund Stargate, a data-centre joint venture with OpenAI.
Aside from the way it processes data, DeepSeek appears to be relatively similar to other AI chatbots on the market, like ChatGPT, making it a legitimate rival to these applications.
Its emergence has upended Wall Street, and has raised questions in the US on whether Silicon Valley is overspending on tech advancements in the AI sector.
The emergence of the Chinese made AI-app DeepSeek comes on the heels of a major announcement by President Donald Trump to advance AI development in the US.
Last week, Trump unveiled Stargate – a $500bn AI venture that will be financed and carried out by three companies: OpenAI, SoftBank and Oracle.
The project is meant to accelerate AI development in the US, with Trump hailing it “the future of technology.”
Sam Altman of OpenAI called it “the most important project of this era.”
But Gina Raimondo, the former US secretary of commerce, initially championed the ban and sanctions but later conceded that “trying to hold China back is a fool’s errand,” instead advocating for rampant innovation to stay ahead.
Yet DeepSeek’s success is not just a milestone for China—it’s a warning for America. If Washington continues to lean on tariffs as its primary tool of economic influence, it will find itself increasingly sidelined in a world where innovation, not restriction, drives power, wealth and growth.
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