Broadcom stock price was down by more than 11% in the premarket session on Monday, trading at $216 at the time of writing. The decline came amid investor concern from Chinese startup, DeepSeek, which is seen as a formidable rival to leading AI chipmakers, including Broadcom and Nvidia.
DeepSeek’s AI business model could offer high-grade Large Language Models (LLM) at a fraction of what American tech giants currently offer, potentially eating into their revenues.
DeepSeek Spells Trouble for AI Stocks
Despite using inferior chips, DeepSeek’s LLM training costs a small fraction of what American mega corporations like Alphabet, Amazon, Meta etc use. The company’s R1 LLM released last week is not only available in open source but also requires substantially less computing power. Therefore, DeepSeek’s business model they are developing could be the biggest disruptor to the AI market since ChatGPT.
Broadcom stock price is likely to suffer the ripple effects of the growing Fear Uncertainty and Doubt (FUD) sentiment around the American AI industry, not just in the near term but also in the medium and long term.
Broadcom stock price rose by 96% in 2024 and it maintains a healthy order book, thanks to a strong demand for its AI Application-Specific Integrated Circuits (ASIC). In addition, it has risen by 3.6% year-to-date. However, by undercutting the market, DeepSeek will likely trigger a chain reaction that could necessitate the revision of earnings forecasts.
Broadcom (NASDAQ: AVGO) was not the only AI tech giant on the decline in reaction to the DeepSeek phenomenon. Nvidia stock price was down by -10.3%, Taiwan Semiconductor Manufacturing Company (TSCM) was at -10.9%, and Super Micro Computer Inc. went down by -10.6%. In addition, META was at -6% and Microsoft lost -5% in the pre-market session.
Broadcom Stock Price Prediction
Broadcom stock price pivots at $233 and the momentum signals bearish control. Immediate support will likely be at $225. With the sellers in control, AVGO will likely find the first support at $210. However, and extended downward momentum could break below that level and test $200.
Conversely, moving above $225 will signal a momentum shift to the upside. If that happens, Broadcom stock price will likely encounter the first resistance at $241. However, a stronger upward momentum could break above that level, invalidating the downward narrative. Also, the resulting momentum could extend gains to test the second resistance at $252.
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