Independent power producer stocks tumbled Jan. 27 as part of a broader selloff after China-based DeepSeek launched an open-source reasoning foundation AI model that uses significantly less electricity than US alternatives, calling into question the sector's datacenter-focused 2024 share price rally.
Vistra Corp. units fell more than 28%, while Talen Energy Corp. dropped 21.6% and Constellation Energy Corp. was down nearly 21%. NRG Energy Inc. declined 13.2% and Public Service Enterprise Group Inc. fell 6.8%.
Two Canadian Independent power producers (IPP) saw steep drops as well: TransAlta Corp. shares fell 20.6% and Capital Power Corp. shares were down 17%, both on the Toronto Stock Exchange.
IPP stock prices ballooned in 2024 as both Talen and Constellation signed nuclear energy offtake contracts with large tech corporations to facilitate datacenters' round-the-clock electricity needs. Constellation shares popped again earlier in January after the company announced plans to acquire privately owned Calpine Corp. for $26.6 billion from a consortium led by Energy Capital Partners to form a nuclear and natural gas generation giant.
The Jan. 27 selloff, however, "implies any uplift provided by the promise of datacenter load growth has effectively been washed out," analysts at Evercore ISI wrote in a Jan. 27 report.
A more efficient and lower-cost model like DeepSeek's chatbot "significantly reduces AI's most pressing bottleneck, the lack of energy to power models," Evercore analysts said.
Entergy Corp., which plans to build more than 2,200 MW of new gas capacity to power a $10 billion AI-driven Meta Platforms Inc. datacenter in northeast Louisiana, saw shares decline 4.52% to close at $78.79.
Analysts at Jefferies agreed in a Jan. 27 note that it "calls into question the significant electric demand projections for the US" and that "the 20% year-to-date rally in power companies looks exposed."
But reduced datacenter power consumption could still spur "more faster adoption such that it still supports higher power demand in an already tight power market, which would still be supportive of robust power prices (and EBITDA/Cash flow upside for IPPs)," Evercore said.
Tech companies say the biggest declines on the day but advanced nuclear technology developers also took a beating, with shares of NuScale Power Corp. falling 27.53% and Oklo Inc. finishing the day 25.61% lower.
The S&P 500 fell 1.5% and the Nasdaq Composite dropped more than 3%, while the Dow Jones Industrial Average, with less exposure to the tech sector, gained approximately 0.7%.
Todd Snitchler, president and CEO of the Electric Power Supply Association, said in a statement that the recent news about DeepSeek "serves only to remind us that the pace of change is incredibly fast and we don't have a crystal ball on how the specifics will play out."
During a Jan. 10 conference call to discuss the Calpine acquisition, Constellation President and CEO Joseph Dominguez reassured investors that unprecedented electricity demand forecasts are already translating into financial commitments from large tech companies.
"We can all raise questions about the ultimate magnitude of these increases. Do we believe all of it is real? It's hard to say, really," Dominguez said at the time. "What's more compelling to me than the ultimate amount of projected growth, which is, again, something we could always debate, is that we're seeing year-over-year increases to the annual forecast."
