AI-Exposed Power Stocks Plunge on Concerns Over DeepSeek's Advancements
Amidst Monday's tech sell-off, AI-centric power stocks plummeted following the release of an advanced AI model by Chinese startup DeepSeek. The model's competitive performance and lower cost compared to US counterparts raised questions about the future of AI spending in the US and its dominance in the market.
Constellation Energy (CEG), the largest nuclear plant operator in the US, saw its share price drop by 21%, while electricity generator Vistra Corp (VST) experienced a record decline of 28%. Power equipment maker and servicer GE Vernova (GEV) also declined by 21%, and nuclear power startup Oklo (OKLO) tanked by 25%.
The sell-off was triggered by DeepSeek's release of a new AI model on January 20 that rivaled chatbots from OpenAI and other US tech companies. The model's cost-effectiveness, requiring fewer AI chips than larger players' models, raised concerns about the dominance of US companies in the AI market.
In recent years, Big Tech's insatiable energy demand for data centers has fueled a surge in power stocks. Goldman Sachs estimates that power demand will grow by 160% by 2030. Constellation, Vistra, and GE Vernova had reached new record highs just last week following the announcement of a $500 billion infrastructure project led by SoftBank, Oracle (ORCL), and OpenAI.
Despite the market's negative reaction, Wall Street analysts remain cautious. Stacy Rasgon, Bernstein's managing director and senior analyst, emphasized that DeepSeek's advancements do not indicate the end of AI infrastructure growth. He noted that the model's efficiency, while impressive, is not groundbreaking.
Analysts anticipate gaining more insight later this week when Microsoft (MSFT) and Meta, major spenders in AI data center infrastructure, report their earnings. Their outlooks could significantly impact AI chipmaker Nvidia (NVDA), as over 40% of its revenue reportedly comes from these companies.