Deepseek Crashed the Market in 1 Day
Yesterday, AI efficiency news made utility stocks drop faster than my phone battery at 1%. The market went into panic mode when Chinese AI company DeepSeek announced breakthrough efficiency improvements in their AI models. Utility stocks like Constellation Energy and Vistra took a nosedive, with some dropping double digits in a single day.
Looking at the numbers, Constellation Energy (CEG) plunged 15.3% while Vistra (VST) fell 12.7% — marking their steepest single-day declines since their respective listings. The selloff rippled through the entire utilities sector, with the Utilities Select Sector SPDR Fund (XLU) declining 4.2%, its worst performance since October 2023.
For context:
- These utility companies were up 20–50% this year alone, with Constellation Energy leading the pack at a 48% YTD gain before the correction
- They were riding the AI power consumption hype train, with Wall Street analysts projecting data center power demand to grow at a 15% CAGR through 2027
- Market expectations had priced in a scenario where AI model training would consume as much as 85–90% more power year-over-year
The fundamentals behind this dramatic shift are fascinating. DeepSeek’s announcement suggests their new architecture can achieve similar or better performance while using up to 60% less compute power than previous models. This efficiency gain threatens to undermine the core thesis that drove utilities’ valuations to historically high P/E multiples of 20–25x (compared to their traditional 15–17x range).
Adding another layer of irony — forward power purchase agreements (PPAs) for data centers, which were trading at premium rates of $70–80/MWh in key markets like Texas and Virginia, saw their futures prices decline by 8–10% on the news.
The irony? The very technology that was supposed to make utilities rich is now becoming more energy efficient. Traditional grid growth assumptions of 2–3% annually may need to be revised if AI efficiency improvements continue at this pace. I guess you could say the power companies got… unplugged.
This raises broader questions about the sustainability of the “AI power consumption premium” built into utility valuations. While near-term data center demand remains robust, investors may need to recalibrate their long-term growth expectations as AI technology continues to evolve.
