By Laila Kearney and Liz Hampton
NEW YORK/HOUSTON (Reuters) – Shares of U.S. power, utility and natural gas corporations sold off on Monday in among the biggest recorded one-day drops, as latest AI technology from Chinese start-up DeepSeek forged doubt on a projected surge in U.S. electricity demand and tech spending.
Power producers were amongst the most important winners within the S&P 500 last 12 months on expectations of ballooning demand from the energy-guzzling data centers needed to scale Big Tech’s artificial intelligence technologies.
The broader adoption of AI models just like the one developed by DeepSeek, which it says it inbuilt under two months and is cheaper than models currently utilized by U.S. corporations, could lead to less electricity demand overall and lead to a smaller power build-out, analysts and economists said.
“If proven true, the efficiencies used inside DeepSeek’s open-source model may be applied by the hyperscalers to their models, which might lead to a more moderated demand,” analysts with Evercore ISI said in a note.
Big Tech firms, that are also generally known as hyperscaling data center developers, have devoted tens of billions of dollars in AI data center development during the last 12 months.
Within the U.S., data centers consumed roughly 4.4% of electricity in 2023 but are anticipated to make use of 6.7% to 12% of all power by 2028, in accordance with a report produced by the Lawrence Berkeley National Laboratory.
Independent power provider Constellation Energy, whose shares had shot up about 100% in 2024 largely on its ability to sell nuclear and gas-fired power to U.S. data centers, sunk by about 20% in trading on Monday after news of DeepSeek’s advancements.
Vistra was down 30% and rival Talen Energy Corp was down 22%.
DeepSeek AI could also threaten the dominance of current AI leaders, that are based in Silicon Valley, and slow their deployment of information centers. DeepSeek’s AI assistance had overtaken U.S. rival ChatGPT in downloads from Apple’s app store on Monday.
But with the broader adoption of AI, even with more energy-efficient models, power demand could surge in all places, said Ed Hirs, an energy economist on the University of Houston. He cautioned that a sell-off of power stocks may very well be short-sighted and short-lived.
“On this instance, if DeepSeek seems to be what everybody wants, they usually sell to U.S. corporations, and the U.S. corporations change their algorithms to adopt to it, it just means a greater, faster broader development,” Hirs said.
Still, electricity corporations, and even producers of feedstocks related to power generation, were under pressure.