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Prediction: This Artificial Intelligence (AI) Chip Stock Will Win Big From DeepSeek's Feat
AVGOBroadcom(AVGO) The Motley Fool·2025-02-07 08:00

Core Insights - DeepSeek, a Chinese AI start-up, has disrupted the U.S. tech sector by launching a cost-effective, open-source large language model (LLM) that has surpassed OpenAI's ChatGPT in downloads on Apple's App Store [1] - The company claims to have trained its DeepSeek-V3 model with only 6millionandrecentlyintroducedanewreasoningmodel,DeepSeek−R1,whichissaidtobe20to50timescheaperthanOpenAI′smodel[2]−ThecostefficiencyofDeepSeek′smodelshasnegativelyimpactedsemiconductorcompanies′stockprices,raisingconcernsaboutpotentialcutbacksinAIinfrastructurespendingbycompaniesandgovernments[3]CompanyImpact−Broadcom′ssharesfellover176 million and recently introduced a new reasoning model, DeepSeek-R1, which is said to be 20 to 50 times cheaper than OpenAI's model [2] - The cost efficiency of DeepSeek's models has negatively impacted semiconductor companies' stock prices, raising concerns about potential cutbacks in AI infrastructure spending by companies and governments [3] Company Impact - Broadcom's shares fell over 17% following DeepSeek's announcement, but the advancements made by DeepSeek could ultimately benefit Broadcom by increasing demand for its custom processors [4] - There is ongoing debate regarding the actual costs incurred by DeepSeek in training its models, with some reports suggesting the company may have access to high-end Nvidia chips [5] - Major tech companies are working to reduce computing costs by moving away from Nvidia hardware, which has positively impacted Broadcom as firms develop AI-focused application-specific integrated circuits (ASICs) [6] Market Dynamics - Broadcom designs ASICs that are faster and cheaper for specific tasks compared to general-purpose GPUs, leading to increased adoption of its custom AI processors [7] - The company claims to have three major hyperscale cloud companies using its custom AI chips, with two more in negotiations, indicating a growing market for Broadcom's offerings [8] - DeepSeek's LLM distillation method allows for smaller, task-specific models, which could further drive demand for custom AI processors [9] Financial Outlook - Broadcom anticipates a total addressable market for custom AI processors and networking chips to grow to between 60 billion and 90billionoverthenextthreeyears,significantlyincreasingitspotentialAIrevenuefromthe90 billion over the next three years, significantly increasing its potential AI revenue from the 12.2 billion generated in the last fiscal year [10] - The recent decline in Broadcom's stock price presents a buying opportunity for investors, as the company is now trading at 35 times forward earnings, close to the Nasdaq-100 index's earnings multiple [11][12] - The breakthrough by DeepSeek may not be detrimental to Broadcom, suggesting that investors should consider the broader market dynamics before making investment decisions [13]