Broadcom Stock Remains Shaky After DeepSeek Sell-Off. How Worried Should Investors Be?
Broadcom stock is struggling for direction Tuesday after the chipmaker fell sharply Monday following the release of DeepSeek, a cheap AI chatbot.
Broadcom (AVGO) stock is bouncing between positive and negative territory Tuesday after the chipmaker plunged more than 17% Monday following the release of DeepSeek. The artificial intelligence (AI) chatbot from China quickly climbed to the top of Apple's (AAPL) app store as the most downloaded free application.
Wall Street is keeping a close eye on several semiconductor stocks after the release of DeepSeek, an open-source AI chatbot created by a Chinese technology company. DeepSeek claims that it can outperform OpenAI and Meta Platforms' (META) Llama 3.1, amongst others.
Furthermore, DeepSeek took only two months to build its generative AI models and cost less than $6 million, according to Reuters.
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"DeepSeek combined a number of techniques to improve compute efficiency in both training and inference," says UBS Global Research analyst Timothy Arcuri. He adds that while many of these techniques are already well known, the feedback from many leading experts in the AI sector, including Marc Andreessen and Noam Brown, "does suggest this was a significant achievement and a very powerful model (with another multi-modal model (Janus-Pro) released today and geared to images)."
Indeed, Andreessen, billionaire Silicon Valley investor and technology expert, posted on X (formerly Twitter) Sunday evening saying, "Deepseek R1 is AI's Sputnik moment."
Nvidia (NVDA), which lost $591 billion in market value on Monday, a record for any stock, also chimed in on DeepSeek's accomplishments.
"DeepSeek is an excellent AI advancement and a perfect example of Test Time Scaling," an Nvidia spokesperson told CNBC yesterday. "DeepSeek's work illustrates how new models can be created using that technique, leveraging widely available models and compute that is fully export control compliant."
Is Broadcom stock a buy, sell or hold?
Even with Monday's sharp drop, Broadcom shares are still up more than 100% on a year-over-year basis. And Wall Street remains overwhelmingly bullish on the tech stock.
According to S&P Global Market Intelligence, the average analyst target price for AVGO stock is $241.97, representing implied upside of nearly 20% to current levels. Additionally, the consensus recommendation is Strong Buy.
Financial services firm BofA Securities has a Buy rating and $250 price target on the large-cap stock.
"Data center continues to be one of the few bright spots into fourth-quarter semiconductor earnings, with four major U.S. hyperscalers (Google, Microsoft, Meta, Amazon) set to report in the coming weeks," wrote BofA Securities analyst Vivek Arya in a January 16 note. "Our top picks in AI remain NVDA and AVGO, respective leaders in merchant and custom AI silicon."
Meanwhile, Mark Malek, chief investment officer of Siebert, called yesterday's sell-off an overreaction. "Competition is what fuels technology innovation! DeepSeek developed an AI [model] in a short period of time with allegedly fewer resources than those used by the U.S.-based prototypes we have all been using to date."
He adds that this is "great news … for every AI behemoth out there who is probably already experimenting with similar models and will by now already be testing DeepSeek's method."
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