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DeepSeek's AI Model Just Upended the White-Hot US Power Market

Jan 28, 2025 - financialpost.com
Chinese AI company DeepSeek has disrupted the US power market by introducing a more energy-efficient AI model, challenging the assumption that AI's energy demands would continue to drive significant increases in electricity consumption. This development has led to a sharp decline in power stocks, with companies like Vistra Corp. and Constellation Energy Corp. experiencing significant losses. Analysts suggest that the previous projections of AI's power needs, which accounted for a large portion of US power demand forecasts, may have been overstated. DeepSeek's model could potentially reduce AI's climate impact, although questions remain about the technology's efficiency and its broader implications.

Despite the potential for reduced energy consumption, the demand for power is expected to continue rising due to increasing electrification in homes and factories. The AI industry's growth, driven by new use cases and technological advancements, may still lead to increased power needs, a phenomenon known as the Jevons paradox. The US is keen to maintain its leadership in AI, with significant investments in nuclear energy to support data centers. However, experts caution against overestimating market demand and emphasize the importance of risk management to avoid costly infrastructure investments that may not be necessary if AI businesses fail to meet expectations.

Key takeaways:

  • DeepSeek's AI model has disrupted the US power market by offering more efficient energy use, challenging existing projections of AI's energy demands.
  • The stock market reacted negatively, with significant declines in power and chip companies, due to concerns over future data center deals.
  • Despite DeepSeek's advancements, AI's energy demand is expected to grow, driven by increased accessibility and new use cases.
  • There are parallels drawn between the current AI data center boom and the early 2000s dotcom crash, highlighting the risk of overestimating market demand.
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