Constellation Energy (NASDAQ:CEG) was among the losers this week as the deregulated utility was one of a number of stocks to get hit hard by the launch of DeepSeek, the Chinese AI start-up that is reportedly able to achieve performance results similar to ChatGPT and Alphabet's Gemini, but at a much lower cost.
The news caused investors to question the trajectory of the AI infrastructure because it made it seem like tech companies may be overspending.
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Constellation Energy fell 21% on Monday as a result. However, the stock recouped some of those losses over the remainder of the week as AI stocks generally rebounded, and it was down 13% for the week as of Friday at 10:51 a.m. ET, according to S&P Global Market Intelligence.
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Constellation's AI risk
As a deregulated utility, Constellation is one of the few in that industry able to adjust prices according to market demand. Because of that, the stock soared last year, along with fellow deregulated utility Vistra, on bets that the AI data center boom would cause electricity demand to spike, leading to a boon for deregulated utilities.
The DeepSeek news led investors to question that assumption because it now seems that competent large language models can be run at much lower energy costs.
At least one Wall Street analyst has weighed on the DeepSeek impact. Bank of America remained bullish on Constellation and said the sell-off was an overreaction. It did lower its price target on the stock from $380 to $366, but maintained a buy rating, noting that data center demand was likely to remain strong over the medium term.
Is DeepSeek a risk to Constellation Energy?
At this point, the implications from DeepSeek, both geopolitical and technological, are unclear. However, deregulated utilities like Constellation seem to be at the bottom of the food chain as far as their ability to adapt to market changes.
If AI-related energy demand is lower than expected because of DeepSeek, Constellation is more at risk of a slowdown than Nvidia or other AI tech stocks. It's certainly an issue that investors should keep an eye on, though the initial sell-off seems to be an overreaction.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Bank of America is an advertising partner of Motley Fool Money. Jeremy Bowman has positions in Bank of America and Nvidia. The Motley Fool has positions in and recommends Alphabet, Bank of America, and Nvidia. The Motley Fool recommends Constellation Energy. The Motley Fool has a disclosure policy.
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