A Chinese artificial intelligence start-up, DeepSeek, has sent shockwaves through the US tech sector after its cost-effective, open-source large language model (LLM) topped Apple’s App Store in the US, overtaking OpenAI’s ChatGPT. The company claims to have trained its DeepSeek-V3 model with just $6 million, while also launching a new reasoning model known as DeepSeek-R1 that can compete with OpenAI’s o1 model and is 20-50 times cheaper.
The news has caused shares of semiconductor companies, including Broadcom, to plummet. However, the company’s focus on cost efficiency could boost demand for its custom processors, which are faster and less expensive than graphics processing units (GPUs). Broadcom sees a massive increase in its potential AI revenue over the next three years, with a total addressable market of $60-90 billion.
Investors can now buy Broadcom stock at a relatively cheaper valuation, trading at 35 times forward earnings. This brings the company’s multiple close to the tech-heavy Nasdaq-100 index’s earnings multiple of 33.5. Buying the stock at this level could be a smart move, given the growing demand for cost-efficient AI models and custom processors.
DeepSeek’s breakthrough has brought into focus the significant amount of money and computational power required to train and deploy AI models. Technology giants such as Meta Platforms, Amazon, OpenAI, and Alphabet have been working to lower computing costs by reducing their reliance on Nvidia hardware. However, Broadcom has benefited from this trend by developing AI-focused application-specific integrated circuits (ASICs) that are faster and less expensive than GPUs.
The company claims to already have three big hyperscale cloud companies using its custom AI chips, with another two in negotiations with the company. As DeepSeek employs a method of “distilling” LLMs to reduce costs, its models could increase demand for custom AI processors. With Broadcom’s potential AI revenue expected to increase by $60-90 billion over the next three years, now is a good time to buy the stock at a relatively cheaper valuation.
Source: https://www.fool.com/investing/2025/02/07/prediction-this-artificial-intelligence-ai-chip-st