This week witnessed a decline in GE Vernova's share value, with investors expressing concern.
GE Vernova's shares took a dip this week, dropping approximately 9%, following the release of DeepSeek's cutting-edge AI model. This Chinese startup claims its AI models are significantly cheaper than their U.S. counterparts, potentially transforming the market if their quality matches the price tag.
This isn't just a blow for GE Vernova, but a potential challenge to the investment proposition that had been popular in 2024. The theory was that the increasing demand for AI applications would also surge the need for robust data center power. Companies like Amazon Web Services, Google, and Microsoft's Azure have jumped on this bandwagon by securing long-term power supply deals with the nuclear industry.
In 2024, data center infrastructure and technology stocks, such as Nvidia and Vertiv, saw a boost. Similarly, GE Vernova's shares skyrocketed as the market anticipated a larger demand for gas turbine equipment, services, and electrification equipment. However, the DeepSeek news has dampened these expectations, leading the market to reconsider its bullish outlook on data center and power demand growth in the U.S. Consequently, stocks associated with this theme saw a sell-off.
Yet, optimists view this as an opportunity rather than a setback. They argue that DeepSeek's AI, along with other AI advancements, could spur global AI adoption, benefiting all players in the market. Moreover, GE Vernova's global presence and dominance in the gas turbine market, making up 38% of the market under construction in Asia, ensure its relevance, despite the AI landscape evolving.
DeepSeek's AI model carries far-reaching implications for GE Vernova and the broader market for data center power and AI applications. It poses a threat to traditional power demand projections, potentially slowing down data center construction and reducing the urgency for massive infrastructure upgrades. Despite this, some companies like Chevron and GE Vernova are exploring alternative power solutions, such as building gas-fired power plants directly connected to data centers. This could address the challenges faced by data center operators in securing reliable power sources.
There's also a debate about whether DeepSeek's efficiency improvements might hasten the development of more powerful AI models while also acting as a challenge to the investment case for independent power producers and utilities. Further, the model's potential to undermine the investment case for nuclear power and next-generation small modular reactors adds complexity to the landscape.
In conclusion, DeepSeek's AI model creates a fascinating debate, challenging traditional power demand projections and leading to a reevaluation of infrastructure and investment strategies in the data center and energy sectors.
Despite the dip in GE Vernova's shares, some investors might See this as an opportunity to invest in the company's gas turbine equipment, recognizing its dominant position in the Asian market. To make the most of this situation, it would be wise to consider investing in the development of more efficient power solutions, such as gas-fired power plants directly connected to data centers.
The introduction of DeepSeek's AI model has the potential to revolutionize the finance of data center operations by significantly reducing the cost of AI models, potentially shifting the focus from investing in traditional power sources to investing in the advancement of AI technology.
