Headline: Power Stocks' Price Surge Stalls Amid Doubts About AI Demand
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Power providers' stock performance reflects the industry's recent bullish trend. However, a shift in sentiment has occurred.
In 2024, the S&P Utility Index rose 20%, fueled by expectations of increased demand for power from AI data centers. Vistra, a major player in power generation and retail electricity, experienced a remarkable 258% increase, surpassing the growth of Nvidia.
However, DeepSeek's R1 release raised concerns about the efficiency of generative AI training and inference. This has led to questions about whether less power consumption is needed, causing a decline in utility stock valuations.
Analysts like Anthony Crowdell of Mizuho believe that utility stocks have become overvalued due to speculation. They emphasize that Microsoft's commitment to Constellation Energy is currently the only significant deal of its kind.
While some analysts argue that AI will continue to drive growth for technology stocks, others see it as an extension of existing businesses rather than a revolutionary change.
Bank of America analysts maintain that data center demand will remain strong in the near term, but concede that efficiency gains may pose a downside risk in the long run.
Hyperscale giants like Microsoft and Amazon continue to invest in data center expansion, providing some support to utility stocks. However, whether this translates into actual agreements with utilities remains uncertain.
Investors should monitor the evolving landscape and consider both the potential for growth and the downside risks associated with utility stocks.