What China’s DeepSeek AI model means for U.S. power stocks after Monday’s sell-off
The power stocks most exposed to artificial intelligence sold off steeply Monday, as some investors fear that models developed in China could prove more energy efficient, potentially undermining the thesis that electricity demand in the U.S. will surge as the tech sector builds out data centers. But the sell-off does not take into account the broader context of power demand growth in the U.S., said Shahriar Pourreza, senior managing director of power and utilities at Guggenheim Securities. “What we’re telling people is it’s a little too early. It’s a bit of a knee jerk reaction,” Pourreza told CNBC on Monday. Investors panicked as the AI assistant developed by China’s open-source laboratory DeepSeek has shot ahead of OpenAI’s ChatGPT to become the most downloaded-free app in Apple ‘s application store. Vistra Corp. plunged 28% on Monday, while Constellation Energy , Talen Energy and GE Vernova fell more than 20%. Those stocks have been considered some of the best ways for investors to play rising power demand from AI data centers. On Tuesday, Vistra shares were up slight. The stock had been the second best performer in 2024 behind Palantir, nearly tripling in value. Constellation shares, which nearly doubled, also ranked among the top stocks last year. It was logging a second day of losses on Tuesday. Talen shares, which have nearly tripled over the past 12 months, were up nealry 4% on Tuesday. While details are still emerging, DeepSeek’s servers could be 50% to 75% less power intensive than Nvidia ‘s GPU platform, according to a Monday note from BMO Capital Markets. DeepSeek’s AI model has raised doubts about “the high expectations for cloud capex, chip growth and power requirements” as a consequence, according to a note from Bank of America. But the vast majority of power demand growth in the U.S. is coming from electrification and the expansion of domestic manufacturing among other themes, Pourreza said. Many investors dove into stocks such as Constellation, Vistra and Talen just on the AI angle, the analyst said, but “the outlook for data centers was just the cherry on top” on the power demand theme. “What we’re telling people is the fundamentals are still very healthy,” Pourreza told CNBC. The U.S. still has an acute need to grow its power supply and the emergence of DeepSeek “may signal a need to actually accelerate capacity additions,” BMO analysts told clients. The need to invest in the grid in the U.S. and Europe is “still a fundamental requirement,” according to Bank of America. “Electrical grids in Europe and the US remain under-invested and one of the critical bottlenecks in terms of meeting load growth requirements,” Bank of America analysts told clients Monday. Guggenheim has not changed its outlook for Constellation, Vistra and Talen. The firm has a price target of $378 for Constellation, implying upside of 37% from current levels. Vistra has a target of $212, suggesting upside of about 55%. Talen’s target is $258, indicating 48% upside.
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