Shares of U.S. power, utility, and natural gas companies experienced significant declines on Monday, marking some of the largest one-day drops ever recorded. This downturn was triggered by new AI technology from Chinese startup DeepSeek, which has raised questions about the anticipated surge in U.S. electricity demand and tech spending. Power producers had been among the top performers in the S&P 500 last year, fueled by expectations of increased demand from energy-intensive data centers required to scale Big Tech’s artificial intelligence technologies. However, the broader adoption of AI models like the one developed by DeepSeek, which claims to have been built in under two months and is more cost-effective than models currently used by U.S. companies, could lead to reduced overall electricity demand and a smaller power infrastructure build-out, according to analysts and economists.

“If proven true, the efficiencies used within DeepSeek’s open-source model can be applied by the hyperscalers to their models, which would result in a more moderated demand,” analysts with Evercore ISI noted. Major tech firms, also known as hyperscaling data center developers, have invested tens of billions of dollars in AI data center development over the past year. In the U.S., data centers consumed approximately 4.4% of electricity in 2023 but are expected to use 6.7% to 12% of all power by 2028, according to a report by the Lawrence Berkeley National Laboratory.

Independent power provider Constellation Energy, whose shares had surged about 100% in 2024 due to its ability to sell nuclear and gas-fired power to U.S. data centers, dropped by about 20% in trading on Monday following news of DeepSeek’s advancements. Vistra was down 30%, and rival Talen Energy Corp was down 22%. DeepSeek AI could also challenge the dominance of current AI leaders based in Silicon Valley and slow their deployment of data centers. DeepSeek’s AI assistance had surpassed U.S. rival ChatGPT in downloads from Apple’s app store on Monday. However, with the wider adoption of AI, even with more energy-efficient models, power demand could increase globally, said Ed Hirs, an energy economist at the University of Houston. He cautioned that a sell-off of power stocks could be short-sighted and short-lived.

“In this instance, if DeepSeek turns out to be what everybody wants, and they sell to U.S. companies, and the U.S. companies change their algorithms to adopt to it, it just means a greater, faster broader development,” Hirs said. Still, electricity companies, and even producers of feedstocks related to power generation, were under pressure. Earlier this month, Constellation acquired private natural gas producer Calpine Energy for $16.4 billion in one of the largest U.S. power industry deals ever, a sign of rising expectations that demand for gas will grow as a generation source for AI. Shares of publicly-traded natural gas producers, which make up the largest share of fuels used to generate electricity in the United States, also declined. EQT Corp was off 9%. Midstream operator Energy Transfer, which has received connection requests from dozens of data centers, was down about 7%.