The launch of DeepSeek, an open-source AI lab in China, has sent shockwaves through the energy sector, particularly those companies heavily invested in data center infrastructure. Investors are now questioning the actual energy consumption of AI applications, leading to a decline in stocks of companies like Constellation Energy, Vistra Corp., and GE Vernova, which had previously benefited from the assumption that AI would drive significant electricity demand. DeepSeek's rapid advancements in AI, particularly its 'earth-shattering' model and competitive reasoning model, have challenged the perception of US leadership in AI and raised doubts about the previously high expectations for cloud spending, chip growth, and energy requirements.
Power companies heavily invested in the tech sector's data center boom tumbled early Monday as the debut of China 's DeepSeek open source AI laboratory led investors to question the energy consumption of artificial intelligence applications. Constellation Energy, Vistra Corp., and GE Vernova have been leading the S&P 500 this year as investors speculated that AI data centers would significantly boost electricity demand.
However, all three companies suffered losses as the market was pulled lower by investor worries about AI competition from China. DeepSeek released an AI model on Christmas day that Scale AI CEO Alexandr Wang described in a recent interview with CNBC 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, with Wang stating that DeepSeek has essentially caught up with OpenAI. 'Their model is actually the top performing, or roughly on par with the best American models,' Wang told CNBC's Andrew Sorkin in a January 23rd interview at the World Economic Forum in Davos, Switzerland. Microsoft CEO Satya Nadella has described DeepSeek as 'super-compute efficient.' Bank of America analysts noted in a Monday report that DeepSeek is 'challenging the notion of U.S. leadership in AI and raising doubts about the high expectations for cloud capital expenditures, chip growth, and power requirements.' The tech sector had anticipated needing massive amounts of electricity to power data centers, leading them to increasingly explore nuclear power as a reliable and carbon-free energy source. Vistra, though not yet involved in a data center deal, has garnered investor interest due to its nuclear and natural gas assets. GE Vernova has seen a surge this year as the market anticipates that its gas and electric grid businesses will capitalize on 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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