The US power sector experienced a significant sell-off on Monday, triggered by advancements in artificial intelligence (AI) by Chinese startup DeepSeek. The company’s new AI model, perceived as a rival to those developed by OpenAI and other US tech giants, raised concerns about US companies’ AI spending and market dominance. This sent ripples through the market, impacting companies tied to the burgeoning AI infrastructure sector.
Constellation Energy (CEG), the largest nuclear power plant operator in the US, saw its stock plummet by 21%. Electricity generator Vistra Corp (VST) suffered a record 28% drop, while power equipment manufacturer and servicer GE Vernova (GEV) declined by 21%. Even nuclear power startup Oklo (OKLO) wasn’t immune, with its stock plunging 25%.
DeepSeek unveiled its new AI model on January 20th. Analysts and industry experts quickly recognized its potential to compete with leading chatbots from established players like OpenAI. Furthermore, DeepSeek’s model boasts lower production costs, requiring fewer AI chips compared to its competitors. This development has prompted a reassessment of the competitive landscape within the AI industry.
The surge in power stocks in 2024 and early 2025 was largely driven by Big Tech’s escalating energy demands for data centers fueled by the AI boom. Goldman Sachs projected a staggering 160% increase in power demand by 2030, underscoring the sector’s growth potential. This projection fueled optimism and investment in the power sector.
Last year, Constellation Energy secured a significant nuclear power deal with Microsoft to revitalize a unit at Three Mile Island in Pennsylvania. In December, Meta Platforms (META) solicited proposals from nuclear energy developers to support its AI initiatives. These partnerships highlighted the growing synergy between the tech and energy sectors.
Constellation, Vistra, and GE Vernova all reached record highs last week following President Donald Trump’s announcement of a new $500 billion AI project backed by prominent investors like SoftBank (SFTBY), Oracle (ORCL), and OpenAI. This announcement further bolstered investor confidence in the power sector’s long-term prospects.
However, DeepSeek’s breakthrough has introduced an element of uncertainty. Wall Street analysts have offered counterarguments to the market’s negative reaction.
Stacy Rasgon, Bernstein managing director and senior analyst, downplayed the threat, stating, “I don’t think DeepSeek is doomsday for AI infrastructure.” He acknowledged the impressive capabilities of DeepSeek’s models but emphasized that their achievements are not revolutionary or unknown to other leading AI research labs.
Upcoming earnings reports from Microsoft (MSFT) and Meta, two significant investors in AI data center infrastructure, are expected to provide further clarity. Their outlooks will likely influence AI chipmaker Nvidia (NVDA), which derives a substantial portion of its revenue from these tech giants. According to Bloomberg data, over 40% of Nvidia’s revenue is generated from Microsoft, Meta, Alphabet (GOOG, GOOGL), and Amazon (AMZN). These upcoming reports are anticipated to shed light on the future trajectory of AI investment and its impact on related sectors.
The market’s response to DeepSeek’s progress underscores the dynamic and rapidly evolving nature of the AI landscape. While the long-term implications remain to be seen, this event highlights the importance of continuous innovation and the potential for disruption within the technology sector. It also emphasizes the interconnectedness of various industries, as advancements in AI have a ripple effect on seemingly unrelated sectors like power generation.
