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Chinese AI Startup Leads U.S. Data Center, Energy Stocks To Plunge

Jan 27, 2025 - bisnow.com
Shares of U.S. tech, data center, and energy firms fell sharply after the unveiling of DeepSeek, a Chinese AI model that rivals U.S. tech giants' models but was developed at a fraction of the cost and with less computing power. The emergence of DeepSeek's R1 model has raised doubts about the necessity of massive investments in high-performance AI chips and data centers, as it suggests that advanced AI models can be developed more efficiently. Nvidia, Oracle, and Softbank saw significant share price drops, while data center REITs like Equinix and Digital Realty also faced declines. The energy sector was impacted as well, with firms like Constellation Energy and GE Vernova experiencing sharp declines due to fears of reduced demand for data center capacity.

Despite the market reaction, some tech leaders, like Microsoft CEO Satya Nadella, view DeepSeek's advances positively, suggesting that cheaper AI could accelerate the technology's adoption. However, skepticism remains about the true efficiency of DeepSeek's model and whether it will significantly impact data center demand. Analysts like Wedbush's Dan Ives believe Big Tech will continue to invest heavily in data centers, projecting $2 trillion in capital spending over the next three years. The situation highlights the volatility and uncertainty in the AI industry, which is still in its early stages despite substantial investments.

Key takeaways:

  • The unveiling of DeepSeek, a Chinese AI model, has caused significant stock drops in U.S. tech, data center, and energy firms due to its cost efficiency and lower computing power requirements.
  • DeepSeek's R1 model challenges the assumption that massive investments in energy-intensive chips and data centers are necessary for advanced AI development, raising doubts about Big Tech's spending strategies.
  • Nvidia, Oracle, Softbank, and data center REITs like Equinix and Digital Realty experienced notable share price declines amid fears of reduced demand for data center capacity.
  • While some industry leaders see DeepSeek's advances as a positive step towards more accessible AI, others remain skeptical about its efficiency claims and the potential impact on the data center demand landscape.
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