Chinese Startup's AI Model Sparks Market Turmoil and Hits Utility, Energy Stocks
The DeepSeek R1 AI model's unexpected capabilities sent shockwaves through markets on Monday. Utility and energy firms, beneficiaries of the AI boom, also suffered significant losses.
The DeepSeek revelation raised doubts about the massive investments and energy requirements commonly associated with AI initiatives. This shattered the narrative that had fueled stellar gains for US tech stocks in recent years.
Nvidia's market capitalization plummeted by $589 billion, erasing over $1 trillion from markets. However, the damage extended beyond popular tech stocks.
Prior to DeepSeek's announcement, US hyperscalers' massive investments in AI had ignited a renaissance in energy, infrastructure, and real estate sectors. The belief that new AI technology demanded vast energy resources and infrastructure led to rallies in these markets.
However, Monday's sell-off ensnared many energy, infrastructure, and real estate stocks that investors perceived as less crowded bets. Shares of the Global X Data Center & Digital Infrastructure ETF tumbled by approximately 6%, while Digital Realty Trust stock declined by about 13%.
Super Micro Computer, a supplier to Nvidia, witnessed an 18% slump. Its stock had surged in 2024 due to optimism surrounding its cooling technology for energy-intensive GPU racks.
Nuclear energy stocks were the worst hit outside of tech. Companies in this sector had positioned themselves as essential energy providers for the AI boom. However, shares of NuScale Power, Vistra, Talen Energy, and Constellation Energy plummeted by 20-26%.
Quanta Services, a specialist in electric power infrastructure and renewable energy, tanked by almost 19%. These losses highlight the market's reaction to the potential disruption caused by DeepSeek's AI model, casting doubts on the previously held narrative about the future of AI investments.