Investors are pulling back from the artificial intelligence trade. Previously, a report by the Lawrence Berkeley National Laboratory highlighted that US data centers are expected to use 6.7% to 12% of all power by 2028. However, one artificial intelligence startup has upended these estimates, leaving investors wondering whether the anticipated surge in power demand and data center expansion still holds.
Energy, infrastructure, and real-estate stocks were tanking on Monday, even though they were known to be less crowded alternatives to stocks such as Nvidia. Monday’s broad-market selloff has revealed how a vast number of energy-related companies have been banking on the AI boom and the anticipated power surge it was expected to bring.
“The share price drop yesterday demonstrated that many energy infrastructure companies got carried away in the momentum of the AI story last year”.
DeepSeek, an artificial intelligence startup from China, caused a frenzy in the AI world after launching its latest AI models. The company claims that these models built are at par or better than industry-leading models in the United States. They require fewer chips and are made at a fraction of the cost. All of these updates are now threatening to upset the technology world. Once the best-performing securities over the past 18 months, US electricity providers are now one of the hardest hit sectors with investors reevaluating their outlooks toward artificial intelligence and the magnitude of money that they are spending.
While many analysts, such as those at Citigroup, assert that DeepSeek’s large-language model had “prompted investor inquiries around the cost of compute”. Yet many others such as Bernstein doubt that the DeepSeek model was actually built with the acclaimed $6 million figure. They deem that the market reaction on Monday was “overblown”. Nevertheless, investors are concerned that the wider adoption of models, such as those by DeepSeek, could result in lesser demand for electricity and also require a smaller power build-out.
"If proven true, the efficiencies used within DeepSeek's open-source model can be applied by the hyperscalers to their models, which would result in a more moderated demand”.
DeepSeek AI is also threatening the dominance of current leaders in the artificial intelligence world. This could potentially slow down the deployment of their data centers. However, an energy economist at the University of Houston noted that the wider adoption of AI could be positive news. This is because this adoption would in turn result in a surge in power demand. This is why he views the power stocks sell-off as short-lived and short-sighted.
"In this instance, if DeepSeek turns out to be what everybody wants, and they sell to U.S. companies, and the U.S. companies change their algorithms to adopt to it, it just means a greater, faster broader development”.
For this article, we selected AI stocks by screening out the worst-performing stocks from Friday's close (24th January) to Tuesday's close (28th January). These stocks were then ranked in ascending order of their declines.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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BWX Technologies, Inc. (NYSE:BWXT) manufactures and sells nuclear components. Nuclear energy firms have been positioning themselves as a prominent source of energy for power-hungry AI data centers. Sadly, these power stocks were hit by the Monday market sell-off amid concerns that DeepSeek’s innovations are hitting the energy market which was previously competing to supply power to the AI industry. BWX Technologies, Inc. (NYSE:BWXT), which supplies clean power and nuclear energy parts to the government, dropped by more than 10%.
Overall BWXT ranks 20th on our list of the AI stocks crashing due to DeepSeek news. While we acknowledge the potential of BWXT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BWXT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
