Why TSM Is Sinking Today

Chip maker Taiwan Semiconductor (TSM) is tumbling 12% today after a Chinese startup, DeepSeek, reportedly developed top-notch AI models using outdated semiconductors. TSM’s top and bottom lines have been meaningfully boosted by demand for the AI chips that it manufactures.

A Look at DeepSeek’s AI Product

DeepSeek’s products appear to be at least as proficient as OpenAI’s ChatGPT and Meta’s (META) AI offering, even though DeepSeek’s systems were built using much older, cheaper chips. Specifically, the Chinese firm reportedly utilized about 50,000 of Nvidia’s (NVDA) H100 AI GPUs and spent less than $6 million in order to create its AI models. The H100 was unveiled back in 2022.

Microsoft (MSFT), Meta (META), and Alphabet (GOOG) are spending hundreds of billions of dollars to develop AI systems, with much of that money being spent on new chips manufactured by TSM. DeepSeek’s ability to develop AI models so cheaply is leading to fears that the American tech giants will eventually reduce their expenditures on semiconductors, causing the growth of TSM to significantly decelerate.

Alternatively, some are worried that China will take over the lead in the AI race from America, a development that would likely hurt the financial results of TSM.

Bernstein Questions the Bearish Narrative

In a note to investors, investment manager Bernstein suggested that the real price tag of DeepSeek’s AI models is much higher than it reported. Admitting that the Chinese firm’s AI models appear to be ” fantastic,” Bernstein asserted that “we don’t think they are miracles.” The bank added that the anxieties about this issue “seem overblown.”

While we acknowledge the potential of TSM, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TSM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.