By Amanda Cooper and Ankur Banerjee
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 U.S. 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%.
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 U.S. rival ChatGPT in terms of Apple Store downloads, offers the prospect of a viable, cheaper AI alternative, raising questions on the heavy spending by U.S. 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 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.
