What Happened?
Shares of fabless chip and software maker Broadcom (NASDAQ:AVGO) jumped 6.3% in the afternoon session after Meta reported fourth quarter earnings and announced plans to scale up its deployment of MTIA (Meta Training and Inference Accelerator) chips, developed in partnership with Broadcom, to optimize cost. Currently used for ad and organic content workloads, these custom chips will expand to AI training tasks, including generative AI, by 2026. To get a picture of how significant these investments are, Meta expects full-year 2025 capital expenditure to be in the range of $60 billion to $65 billion, with a significant portion of the incremental investment to be used to support generative AI efforts.
Chinese AI startup DeepSeek recently made waves with new competitive AI models built on cost-efficient chips, signaling a potential shift in the industry. If Broadcom can deliver on that front, they could see significant gains from this shift.
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What The Market Is Telling Us
Broadcom’s shares are very volatile and have had 26 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 3 days ago when the stock dropped 13.6% on the news that stocks heavily tied to the AI market took a hit after Chinese artificial intelligence startup DeepSeek released a new large language model (DeepSeek-R1) that ranks competitively on key global benchmarks (coding competitions, math evaluations), uses less advanced semiconductor chips, costs significantly less to build (at $5.5 million - excluding non-compute costs), and has already achieved strong adoption after topping the iPhone App Store for AI apps. Notably, the company has also open-sourced this model, a move that may make it harder for rivals to justify huge upfront expenditures on hardware, software, and expertise to develop similar systems.
Speaking at the World Economic Forum in Davos, Switzerland, Microsoft CEO Satya Nadella praised DeepSeek's efforts, calling the new model "super impressive" for its open-source design, efficient inference-time computing, and high compute efficiency. "We should take the developments out of China very, very seriously," he added.
Nadella's comments suggest that upstarts like DeepSeek could reshape the competitive landscape of AI. DeepSeek's announcement disrupts long-held assumptions in key ways: 1) It undercuts the narrative that bigger budgets and access to top-tier chips are the only ways forward for AI development. 2) By using less advanced hardware, DeepSeek opens the door for innovators who face high chip costs or export restrictions, reaffirming they can still compete. 3.) The model's success questions the growth narrative of chipmakers like Nvidia—whose soaring valuations depend on the demand for cutting-edge, high-performance hardware.
Overall, DeepSeek's model demonstrates that AI innovation is no longer a race fueled solely by how much you spend, but rather by how resourceful you can be with what you have.
Broadcom is down 6.3% since the beginning of the year, and at $217.19 per share, it is trading 13.1% below its 52-week high of $250 from December 2024. Investors who bought $1,000 worth of Broadcom’s shares 5 years ago would now be looking at an investment worth $6,898.
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