Broadcom Inc. (NASDAQ: AVGO) shares fell sharply, dropping more than 17% in one day, after the Chinese AI startup DeepSeek introduced a new artificial intelligence model. This raised concerns about increased competition in the AI and semiconductor markets.
Investors are worried about how DeepSeek’s affordable and high-performing AI technology could impact Broadcom.
DeepSeek is gaining attention for its flagship models, DeepSeek-R1 and DeepSeek-V3, which perform similarly to top offerings from U.S. companies like OpenAI and Meta but come at a lower cost and need less powerful hardware.
DeepSeek’s AI assistant quickly climbed the download charts in Apple’s App Store, even surpassing ChatGPT, and its open-source strategy has attracted many developers worldwide.
The disruptive potential of DeepSeek’s technology lies in its ability to deliver advanced AI capabilities using fewer and simpler chips, which helps avoid U.S. export restrictions and reduces dependence on high-end products from Nvidia and Broadcom.
DeepSeek claims its latest model can run with just 2,000 Nvidia chips, a significant reduction from the extensive infrastructure usually required for advanced AI systems. This efficiency lowers operational costs and creates uncertainty about the future demand for high-end AI hardware from U.S. semiconductor companies.
The impact of DeepSeek’s announcement has been immediate. Along with Broadcom, shares of Nvidia, Microsoft, and Alphabet have also dropped significantly, leading to the biggest decline in the Philadelphia Semiconductor Index since 2020.
Analysts warn that DeepSeek’s success could change the AI competition, weakening U.S. firms’ dominance and speeding up China’s efforts towards tech independence.
Despite the sell-off, some experts believe the market response is exaggerated. Broadcom remains a major player in semiconductors and enterprise software, with strong finances and a solid record of innovation.
Its AI-related revenues increased by 220% year-over-year in 2024, and it is expected to capture a market of up to $90 billion by 2027. Many Wall Street analysts continue to rate Broadcom as a “Strong Buy,” seeing the current dip as a chance for long-term investors to buy in.
Looking ahead, Broadcom is at a crucial point. The company needs to respond to DeepSeek’s challenge by speeding up its own AI innovation, improving cost efficiency, and strengthening ties with major cloud providers.
The next stage of the global AI competition will rely on adaptability, and how well Broadcom can adjust will be vital for its growth and leadership in the market.