Dive Brief:

• Shares of some independent power producers fell sharply Monday amid a broader selloff in technology and AI infrastructure stocks. Shares in companies with significant nuclear and gas generation fleets in unregulated markets were particularly hard-hit, with Vistra Corp. falling by more than 28%, Talen Energy more than 21% and Constellation Energy more than 21%.
• The rout came days after Chinese AI startup DeepSeek released two high-performing AI models that may have cost 45 times less to train than leading-edge products from U.S. companies like OpenAI and Anthropic, technology investor and entrepreneur Jeffrey Emanuel said in a Saturday blog post. By Monday, DeepSeek’s AI assistant had surpassed OpenAI’s ChatGPT as Apple’s most-downloaded free app.
• DeepSeek’s success “calls into question the significant electric demand projections for the U.S. [as] AI represents ~75% of overall U.S. demand forecasts through 2030-35 in most projections,” investment bank Jefferies’ power and utilities research team said in a Monday note.

Dive Insight:

Monday’s selloff erased year-to-date gains for Vistra and Talen, but both stocks remain more than twice as expensive as this time last year. Constellation, too, is up about 127% year-on-year.

Advanced nuclear technology companies Oklo and NuScale have also notched impressive gains over the past year, with Oklo more than doubling in value since its May 2024 IPO and NuScale gaining 580% since January 2024. Shares of both companies were down more than 20% on Monday.

In December, Oklo announced a 20-year deal with data center developer Switch for up to 12 GW of power at an undisclosed price. Constellation in September announced plans to reopen the undamaged, prematurely retired first unit at the Three Mile Island nuclear power plant on the back of a 20-year Microsoft power purchase agreement that reportedly places a significant premium on the 835-MW facility’s output.

And early last year, Amazon Web Services purchased an up to 960-MW data center campus from Talen on the expectation that it would buy power from Talen’s 2,228-MW stake in the adjacent Susquehanna nuclear generating station. That arrangement has since come under intense regulatory scrutiny.

Amazon and Google have partnered with privately held nuclear technology companies X-energy and Kairos Power to power data centers beginning in the early 2030s. Amazon gained 0.3% and Google parent Alphabet declined 4% in Monday trading.

These deals came amid steadily escalating projections for future load growth. In a pair of reports published last year, consulting and technology services firm ICF forecast U.S. electricity demand growing by an average of 2% annually through 2033, while the Electric Power Research Institute said data centers’ share of U.S. load could double to 9% by 2030.

Those estimates may already be out of date, said Himali Parmar, vice president of energy advisory services, interconnection and transmission at ICF.

“Relative to ICF’s September report, which projected a 9% increase in U.S. electricity demand by 2028, there is a huge increase in demand,” Parmar said.

A preliminary load forecast presented Dec. 9 by the PJM Interconnection, which hosts proportionally more data center capacity than any other load balancing authority, showed its summer and winter peak load growing by averages of 2% and 3.2% annually through 2045, up from 1.6% and 1.8% growth in its 2023 forecast.

But DeepSeek’s apparent dramatic improvements in efficiency suggests further AI performance gains may require less energy-intensive “compute” than assumed. That threatens “the bull thesis on independent power producers and most integrated utilities [that] is entirely dependent on data centers,” Jefferies said.

Jefferies' own $274 price target for Constellation “is premised on 75% of the nuclear portfolio output being sold at $80/MWh and 50% probability,” it said.

Similarly, regulated utilities were expected to benefit from data centers driving new generation needs, and “a slowdown in data center projections … would have an adverse impact on the higher premium utilities that investors expect to increase rate base,” Jefferies said.

Among IPPs, Talen is best-placed in a lower-demand scenario because it “is pricing in less robust data center contracting scenarios than its peers … and has a path to expanding its existing relationship with Amazon at the Susquehanna nuclear plant,” it said.

Other equities analysts suggested DeepSeek’s breakthrough could actually spur demand for AI infrastructure by accelerating consumer adoption and use and increasing the pace of U.S. tech companies’ investment.

“Jevons Paradox states that increased efficiency can lead to increased consumption of a resource. Lower costs for AI models could lead to faster adoption by corporations and households,” J.P. Morgan Wealth Management’s Global Investment Strategy team said in a note Monday.

On Jan. 22, President Donald Trump publicly touted an AI joint venture, dubbed Stargate, that could see OpenAI, Oracle and SoftBank invest $500 billion in U.S. data centers in the coming years. Trump later suggested powering new data centers with “good, clean coal.”

Amid these technological and financial crosswinds, ICF’s Parmar said it’s too early to tell whether current projections appropriately account for model efficiency gains.

“[But] if some of this demand increase can be tempered by energy-efficient AI technology, that could potentially lighten the burden on the grid, associated supply needs, and impact on customer bills,” Parmar said.