Artificial Intelligence: Jevons Paradox Fuels Optimism Despite DeepSeek's Entry

Introduction:

Despite the emergence of China's cost-effective AI model DeepSeek, European investors are embracing a 19th-century economic theory to justify their continued optimism in the AI sector.

Jevons Paradox:

Named after economist William Stanley Jevons, the paradox suggests that increased resource efficiency can lead to increased demand, as lower costs make the resource more accessible.

AI and Jevons Paradox:

According to investors, this paradox applies to AI as its efficiency improves. Lower costs could drive increased adoption, leading to a surge in demand for AI chips, data centers, and software solutions.

Industry Impact:

The initial selloff following DeepSeek's launch impacted AI companies such as Nvidia, ASML, and Siemens Energy. However, as the market rebounded, investors cited Jevons Paradox as a reason for renewed confidence.

Software and Inference Technologies:

Lower AI costs could fuel innovation in software and inference technologies, creating growth opportunities for companies in these sectors.

Data Center Demand:

Some investors believe that the need for data centers and their infrastructure will continue to grow despite DeepSeek's potential efficiency improvements.

Benefiting Companies:

Companies in the UK market, such as RELX, LSEG, Experian, and Sage, are seen as potential beneficiaries of increased AI consumption.

Skeptical Views:

Not all investors are convinced by the Jevons Paradox argument, citing the recent volatility in Nvidia shares following DeepSeek's launch.

Conclusion:

Investors are using the Jevons Paradox to explain the resilience of the European AI sector in light of competition from DeepSeek. While some are skeptical, others believe that increased AI efficiency could ultimately drive increased demand and create new opportunities.