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Power stocks plunge as energy needs called into question because of new China AI lab

Mon, Jan 27 2025, Spencer Kimball, CNBC

• Constellation Energy, Vistra Corp., Talen Energy and GE Vernova tumbled as China’s DeepSeek AI lab debuted, scaring investors with a lower-cost business model.
• Constellation, Vistra and GE Vernova were leading the S&P 500 this year as investors speculated on AI’s power needs.
• Now, the arrival of DeepSeek is raising questions about how much power will actually be needed.

Power companies that are most exposed to the tech sector’s data center boom plunged Monday, as the debut of China’s DeepSeek open-source AI laboratory led investors to question how much energy artificial intelligence applications will actually consume.

Vistra closed nearly 30% lower, erasing its gains for 2025. Constellation Energy, Talen Energy and GE Vernova tumbled more than 20%, with the latter two stocks also giving up this year’s gains.

Before Monday’s selloff, Constellation, Vistra and GE Vernova had surged to top of the S&P 500 as investors speculated that AI data centers will boost demand for enormous amounts of electricity………………

DeepSeek released an AI model on Christmas Day that Scale AI CEO Alexandr Wang described in an interview with CNBC last week as “earth shattering.” Scale AI provides training data for AI applications.

DeepSeek followed up last week with the release of a reasoning model named DeepSeek-R1 that competes with OpenAI’s o1 model. DeepSeek has since risen to the top of mobile app stores. Wang said DeepSeek has essentially caught up with OpenAI.

“Their model is actually the top performing, or roughly on par with the best American models,” Wang told CNBC’s Andrew Sorkin in a Jan. 23 interview at the World Economic Forum in Davos, Switzerland.

Microsoft CEO Satya Nadella has described DeepSeek as “super-compute efficient.” Bank of America analysts said in a Monday note that DeepSeek is “challenging the notion of U.S. leadership in AI and raising doubts about the high expectations for cloud capex, chip growth and power requirements.”

The tech companies have anticipated needing so much electricity to supply data centers that they have increasingly looked to nuclear power as a source of reliable, carbon-free energy.

Constellation, for example, has signed a power agreement with Microsoft to restart the Three Mile Island nuclear plant outside Harrisburg, Pennsylvania. Talen is powering an Amazon data center with electricity from the nearby Susquehanna nuclear plant…………………………  

https://www.cnbc.com/2025/01/27/power-stocks-plunge-as-ai-energy-needs-questioned-due-to-new-china-model.html

January 30, 2025 - Posted by Christina Macpherson | business and costs, ENERGY