AI Breakthrough Sparks Power Stock Sell-Off
A groundbreaking AI model released by Chinese startup DeepSeek has sent shockwaves through the power sector, casting doubt on the dominance of US companies in the market. The ripple effect was felt across the industry, with major players like Constellation Energy, Vistra Corp, and GE Vernova experiencing significant declines.
A Shift in the Balance of Power
DeepSeek’s innovative AI model, unveiled on January 20, has been hailed as a game-changer in the tech world. Not only does it rival the capabilities of OpenAI and other US tech giants, but it also boasts a more cost-effective design, requiring fewer AI chips. This development has sparked concerns about the sustainability of AI spending levels at US companies.
The Rise and Fall of Power Stocks
The power sector had been on a tear in 2024 and into this year, driven by the insatiable energy demands of Big Tech’s data centers. According to Goldman Sachs, power demand is expected to surge 160% by 2030. However, the recent sell-off has wiped out some of those gains, with Constellation Energy, Vistra Corp, and GE Vernova all tumbling to record lows.
Nuclear Power in the Spotlight
The nuclear power industry, in particular, has been affected by the shift in sentiment. Constellation Energy, the largest nuclear plant operator in the US, had announced a deal with Microsoft to revive a unit at Three Mile Island in Pennsylvania. Meanwhile, social media giant Meta had released a request for proposals from nuclear energy developers to meet its AI needs.
Analysts Weigh In
Despite the market reaction, Wall Street analysts remain optimistic about the prospects of AI infrastructure. “DeepSeek’s breakthrough is impressive, but it’s not a doomsday scenario for AI infrastructure,” said Stacy Rasgon, Bernstein managing director and senior analyst. “Other top AI researchers and labs are also working on similar efficiency gains.”
Earnings Season Looms
The upcoming earnings reports from Microsoft and Meta, two major spenders on AI data center infrastructure, will provide much-needed clarity on the outlook for the industry. Their results will also have a significant impact on AI chipmaker Nvidia, which derives over 40% of its revenue from these tech giants.
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