Power stocks collapse as China's cheap AI raises doubts
- The launch of China's DeepSeek AI lab led to significant declines in major U.S. power companies' stocks.
- Investors are questioning the energy consumption needs of AI data centers following DeepSeek's introduction.
- The uncertainty in energy demand raises concerns about the viability of power companies' investments in nuclear facilities.
In January 2025, concerns regarding energy needs sparked by China's introduction of the DeepSeek AI lab have resulted in significant declines in the stocks of major power companies in the United States. Particularly affected were Constellation Energy, Vistra Corp, GE Vernova, and Talen Energy, with declines exceeding 16%. Investors had previously speculated that the rise of data centers powered by artificial intelligence would elevate the demand for electricity, resulting in higher valuations for these companies. However, with DeepSeek claiming to develop a more efficient and cost-effective model for generative AI than its U.S. competitors, confidence in the anticipated energy consumption has faltered. Consequently, major players in the tech sector had anticipated needing substantial power resources which led to investing in nuclear facilities. For instance, Constellation Energy signed a power agreement with Microsoft to restart the Three Mile Island nuclear plant, while Talen Energy supplies electricity to Amazon's data center from the Susquehanna nuclear plant. As panic spread across the market, European and Asian stock exchanges reflected similar downward trends. The potential proliferation of a cheaper Chinese AI product has raised alarms about its competitive edge against established U.S. tech giants, creating a ripple effect throughout the market. The fear of further tariffs imposed by the Biden administration in retaliation for companies looking to offshoring jobs adds to the growing uncertainty. Additionally, President Donald Trump’s threats of imposing significant tariffs on Columbia for their refusal regarding deportation flights exacerbated investor anxiety, leading to declines in stock values across multiple sectors including tech and energy. Overall, the launch of DeepSeek has shifted market dynamics, causing immediate and dramatic reactions from investors who are now reconsidering the sustainability of power companies linked to the data center boom. Concerns about AI's actual energy demands are significant, causing severe reactions across industries, indicating that the anticipated future demand for electricity may not materialize as once thought. Investors are now wary, and this poses a significant risk to both power stocks and the long-term viability of energy investments fueled by the tech sector's AI ambitions.