The US-listed shares of TSMC fell 13% last Monday on the news before recouping some of the losses later in the week.
DeepSeek’s cost-effective AI model is raising doubts if companies need to incur significant amounts of capital expenditure to develop the technology. That may weigh on TSMC — the main chip supplier to Apple and Nvidia — which recently lifted its quarterly sales forecast on expectations of higher spending on technology and capacity this year.
Fund managers may “reassess their overall portfolio exposure to AI considering recent developments”, said Gary Tan, a portfolio manager at Allspring Global Investmentsin Singapore. “In the near term, we think it will encourage emerging market investors to look outside tech hardware and countries like Taiwan and Korea for potential AI winners.”
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South Korean memory chipmaker SK Hynix, a key supplier to Nvidia, tumbled 9.9% on Friday after trading resumed post-holiday.
Pressure on TSMC, which makes up 39% of the island’s benchmark, may further accelerate foreign outflows from Taiwan. Overseas investors sold US$1.26 billion ($1.72 billion) of local shares in the tech-heavy market in January.
A strategist at Jefferies said he would reduce holdings in Nvidia and TSMC in its global long-only equity fund, given the “potentially dramatic implications” of DeepSeek.
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Bulls remain hopeful given TSMC’s cutting-edge technology and reasonable valuation. The stock is currently trading at around 19 times forward earnings, in line with its five-year average. It’s also cheaper than Intel’s 25 times and Nvidia’s 28 times as of Thursday’s close.
Companies that recently reported results, including Advantest and ASML Holding, have indicated that demand remains strong with elevated spending around AI. That should provide some support for TSMC.
While certain products may experience short-term order headwinds after the emergence of DeepSeek, “low-cost models may drive broader adoption, spurring faster demand for AI inference chips largely reliant on TSMC to manufacture, boosting long-term growth”, Charles Shum, an analyst at Bloomberg Intelligence, wrote in a note.
Charts: Bloomberg
