The cooling towers of the Three Mile Island nuclear power plant in Middletown, Pennsylvania, Oct. 30, 2024.
Danielle DeVries | CNBC
Power companies that are most exposed to the tech sector’s data center boom plunged early 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 tumbled nearly 30% while Constellation Energy, Talen Energy and GE Vernova were all down more than 20%.
Constellation, Vistra and GE Vernova have led the S&P 500 this year as investors speculated that AI data centers will boost demand for enormous amounts of electricity. All three suffered as the market was pulled lower Monday by investor worries about AI competition from China.
Natural gas stocks were also down steeply Monday, suggesting some investors believe the sector might get as big a boost as expected from data center demand. Producer EQT Corp. and pipeline companies Kinder Morgan and Williams Companies all fell around 9%.
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.
Vistra has not signed a data center deal yet, though investors see promise in its nuclear and natural gas assets. GE Vernova has soared this year as the market believes its gas and electric grid businesses will benefit from AI demand.
The Bank of America analysts said grid investment in the U.S. and Europe is still required.
“Electrical grids in Europe and the U.S. remain under-invested and one of the critical bottlenecks in terms of meeting load growth requirements,” the analysts said.
