What You Need to Know About Broadcom (AVGO) Stock’s Decline

Broadcom (NASDAQ:AVGO) is down sharply on Monday, and has continued its decline to -16.5%. This is due to concerns over the Chinese AI startup company called DeepSeek. The startup released an AI model called DeepSeek R1 exactly a week ago, but it has grown to be hugely popular since then and is causing a market-wide ripple effect.

Why DeepSeek Is Causing Broadcom to Decline

DeepSeek is causing Broadcom to decline due to the AI company building its AI model at a fraction of the cost it took OpenAI and other U.S.-based AI companies to make their AI models. The shocking part of this is that the DeepSeek-R1 model performs much better than most of these models at a fraction of the cost. It is rumored that training this AI model costs just $12 million. It is shockingly low. For comparison, Sam Altman’s McLaren cost him some $20 million!

The Impact on Broadcom

The negative impact of DeepSeek is hurting semiconductor companies significantly. Bears believe it will reduce the demand for high-end GPUs. DeepSeek is open source, and since it cost the company just $5.6 million to deliver its V3 breakthrough, other AI companies can quickly copy DeepSeek and its efficiency. In turn, this may lead to both the commoditization of AI models and the reduction of AI-related hardware demand.

Broadcom’s AI revenue is a major growth driver. It surged to $12.2 billion in 2024 and is projected to grow further as it supplies custom chips to hyperscale customers. However, if DeepSeek-R1’s breakthrough sparks a trend, it will greatly reduce the demand for AI chips. AVGO stock could be hit even harder if investors start pricing out all the expected AI-related growth potential. Even just a 10% reduction in AI chip demand is going to sting.

What Wall Street Analysts Think

The current analyst consensus price target is $237. However, competition from DeepSeek heating up will likely cause some bullish analysts to switch sides and lower their price targets in the coming days.

The lowest price target is $160; the highest is at $265. Analysts previously projected its addressable market for AI chips to reach $60–90 billion by 2027, with Broadcom potentially capturing $37.5–50 billion if it maintained its market share. All those numbers are in muddy water now.

The Bottom Line

This could either be a knee-jerk reaction that starts to reverse this week, or the selloff could deepen more if DeepSeek continues gaining. The R1 model necessitates a re-evaluation of how much pricing power and sales potential semiconductor companies will have in the long run. Developers are already migrating en-masse to DeepSeek, so it wouldn’t be wise to brush DeepSeek aside before you consider buying the dip.

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