The release of DeepSeek’s V3 large language model (LLM), which was built for only $5.7 million, has caused investors to worry, which has led to a decline in stocks related to artificial intelligence. This includes Nvidia (NVDA), Broadcom (AVGO), Advanced Micro Devices (AMD), and ASML Holding (ASML). However, five-star analysts at Cantor and UBS disagree with the negative sentiment by arguing that more efficient LLMs will actually boost demand for companies that produce high-end graphic processing units (GPUs) and those that build data centers.
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Cantor analysts, led by C.J. Muse, believe that the increased efficiency of DeepSeek’s V3 model will lead to increased demand for computing power due to The Jevons Paradox, which states that increased efficiency leads to increased usage. They argue that the AI industry will want more computing power, not less. In addition, UBS analysts, led by Timothy Arcuri, share a similar view and believe that compute demand for AI will not fade despite DeepSeek’s efficiency gains.
Interestingly, the analysts also questioned the reported cost of developing DeepSeek’s V3 model, which is significantly lower than expected. Indeed, they suggest that the actual cost may be higher and that DeepSeek may have used more advanced GPUs than initially stated. Despite these questions, the analysts agree that DeepSeek’s advances bring us closer to achieving artificial general intelligence, which will increase investment in large-scale computing clusters and benefit the AI industry as a whole.
Which Chip Stock Is the Better Buy?
Turning to Wall Street, out of the four stocks mentioned above, analysts think that AMD stock has the most room to run. In fact, AMD’s average price target of $171.38 per share implies more than 47% upside potential. On the other hand, analysts expect the least from AVGO stock, as its average price target of $237.08 equates to a gain of 13.4%.
