AI-Exposed Power Stocks Rebound after DeepSeek AI Model Release

Key Points

* Constellation Energy, Vistra Corp, and GE Vernova surged after a tech-led sell-off Monday.
* DeepSeek's AI model, rivaling US counterparts at a lower cost, fueled concerns about decelerating data center energy demand.
* Analysts acknowledge the evolving nature of AI energy requirements but anticipate a long-term increase in electricity consumption.

Rebound after Tech Rout

AI-exposed power stocks witnessed a rebound Tuesday after the previous day's sell-off, triggered by broader market volatility and the release of an AI model from Chinese company DeepSeek. Constellation Energy (CEG), the leading US nuclear plant operator, gained over 1% after a 21% drop in the prior session. Electricity and power generator Vistra Corp (VST) jumped 9% following a record 28% decline. Power equipment manufacturer GE Vernova (GEV) climbed more than 7% after a 21% drop.

DeepSeek AI Model Impact

DeepSeek's new AI model, released in late January, received widespread attention and raised concerns about the potential impact on AI-driven data center energy demand. US hyperscalers were expected to invest heavily in data center expansion, leading to increased energy consumption.

Long-Term Demand Questions

However, DeepSeek's model, which rivaled those of US firms at a lower cost, has raised questions about whether long-term energy demand will meet expectations. Analysts highlight the uncertainty introduced by the AI advancements, suggesting a potential shift from the previous bullish sentiment.

Analyst Perspectives

Pavel Molchanov of Raymond James notes the speculative nature of estimating AI energy needs, emphasizing that the technology is nascent and expected to drive increased electricity demand. Jefferies' Paul Zimbardo acknowledges the likelihood of continued data center deployments in the short term but questions the sustainability of the trend in the later part of the decade.

Data Center Energy Usage

Despite the current market volatility, data shows a significant increase in US electricity consumption in 2024, signaling the tangible impact of data center energy needs. Government projections forecast continued growth in this area for 2025 and 2026.

Infrastructure Challenges

Ines Ferre of Yahoo Finance highlights the long-term nature of data center and power plant construction, emphasizing the need for a marathon-like approach rather than a rapid sprint.