Why Advanced Micro Devices Stock Tanked on Tuesday
Key Points
This would support the inference capabilities of the company's AI model.
Proprietary development threatens the business of third-party chipmakers like AMD.
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Advanced Micro Devices (NASDAQ: AMD) might be the company behind some of the more dependable microchips on the market, but its stock was wobbly on the second trading day of the week. On reports that yet another artificial intelligence (AI) company aims to develop its own specialty processors for the technology, investors sold AMD stock, leaving it with a loss of almost 7%.
Deep search for a proprietary chip
Early Tuesday morning, Reuters reported that Chinese AI developer DeepSeek is planning its own AI chip. If the company is successful, at the very least it would gain independence from its current supplier, AMD, and peer/rival Nvidia. If the chip resonates with other AI businesses, though, it could directly threaten the AMDs and Nvidias of this world.
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Citing three unidentified "people familiar with the matter," the news agency added that DeepSeek's chip is being designed for inference. This is the stage where an AI model leverages its considerable training to produce responses to user queries.
DeepSeek hasn't officially commented on the Reuters story, and neither AMD nor Nvidia has responded.
DIY hardware
Currently, a great many chips on the market support an earlier phase of AI development, training. The future surely belongs more to hardware capable of powering inference. Even if prohibitive export controls prevent DeepSeek from easily selling its chip abroad, a successful product will likely encourage other developers to go the proprietary route. That will drain business from third-party suppliers.
While the apparent Chinese project is certainly worth monitoring, AI chips are immensely complex, and their development process can be long, intense, and expensive. Given that, DeepSeek's effort might not result in a product at all -- so that rout in AMD stock Tuesday feels a bit overblown.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
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