The debut of China's open-source AI laboratory, DeepSeek, has triggered a market selloff in power companies that were heavily favored by investors anticipating a surge in energy demand driven by AI data centers. DeepSeek's advanced AI models, described by experts as 'earth-shattering,' have raised questions about the actual energy consumption of AI applications and the extent to which the sector will benefit from data center growth.
Power companies that are heavily invested in the tech sector's data center boom experienced a sharp decline on Monday, as the emergence of China's DeepSeek open-source AI laboratory raised concerns about the actual energy consumption of artificial intelligence applications. Before this market downturn, Constellation, Vistra, and GE Vernova had surged to the top of the S&P 500, driven by investor speculation that AI data centers would fuel a significant increase in electricity demand.
Natural gas stocks also plummeted on Monday, suggesting that some investors believe the sector might not see as substantial a boost from data center demand as initially anticipated. DeepSeek, the producer of the AI model, released an AI model on Christmas Day that Scale AI CEO Alexandr Wang described in a CNBC interview last week as 'earth-shattering.' Scale AI provides training data for AI applications. DeepSeek followed up last week with the release of a reasoning model named DeepSeek-R1, which competes with OpenAI's GPT model. DeepSeek has since climbed to the top of mobile app stores. Wang stated that DeepSeek has essentially caught up with OpenAI, saying, 'Their model is actually the top performing, or roughly on par with the best American models,' during a January 23rd interview with CNBC's Andrew Sorkin at the World Economic Forum in Davos, Switzerland. Wang has also characterized DeepSeek as 'super-compute efficient.' Bank of America analysts, in a Monday note, indicated that DeepSeek is 'challenging the notion of U.S. leadership in AI and raising doubts about the high expectations for cloud capex, chip growth, and power requirements.' Tech companies had anticipated requiring vast amounts of electricity to power data centers, leading them to increasingly explore nuclear power as a reliable and carbon-free energy source. Vistra, although yet to secure a data center deal, is viewed by investors as having promising nuclear and natural gas assets. GE Vernova has experienced a significant surge this year, as the market believes its gas and electric grid businesses will benefit from AI demand. 'Electrical grids in Europe and the U.S. remain under-invested and one of the critical bottlenecks in terms of meeting load growth requirements,' the analysts stated
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