Energy stocks see sell-off as DeepSeek's power efficiency breaks assumptions
What's the story
An energy-efficient AI model by China's DeepSeek has shaken the power and energy sector, with the S&P Energy index dipping 3% over the last three sessions. This is because AI requires a lot of power, with data centers being the biggest electricity consumers. According to a Barclays report, data centers now consume 3.5% of electricity generated in the US, a number expected to go over 9% by 2030. However, DeepSeek's better energy efficiency could change that drastically.
Result
Impact on technology and semiconductor sectors
The innovative AI model is not just more cost-effective but also outperforms its competitors in terms of performance. The impact of this development has been especially felt in the technology and semiconductor sectors, with leading companies such as NVIDIA witnessing a drop in their stock values by up to 17%.
Consumption stats
Global energy consumption by data centers
Goldman Sachs Research has noted that data centers globally consume 1-2% of total power, a number that is projected to increase to 3-4% by the decade's end. To cater to this demand, quick grid expansion and higher capacities would be required. But DeepSeek's foray into the AI space has sent energy shares tumbling, as it requires less power than most LLMs and other AI models.
Market effect
Impact on energy stocks
In India, the Nifty Energy index has gone down by 7% in a week. Companies such as CG Power, Hitachi Energy, and Power Grid Corporation of India have posted heavy losses.
Popularity
DeepSeek's AI model has become very popular
DeepSeek's AI model has quickly gone viral, topping Apple's App Store download charts and ranking among the top downloads on Google's Play Store. The sudden demand led to temporary service disruption due to system overload. The firm had to limit signups to those with mainland China telephone numbers, attributing "large-scale malicious attacks" on its services to this move.