Because of a potential breakthrough in artificial intelligence, there is a power struggle going on. Not only a power struggle between the US and China to find out who’s going to dominate artificial intelligence in the future, but also a power struggle as the market must adjust its expectation for rapid increases in power demand to drive data centers which were expected to be an incredible growth sector for global markets.
Global stock markets and energy markets are trying to recover after the Chinese artificial intelligence DeepSeek drop raises significant questions about the future of power demand. Perhaps artificial intelligence is going to find a way to use some of the same applications with less cost and less investment in power.
The ongoing assumption continues to be the fact that power demand is going to have to rise significantly to meet the demand for the computing power that we’re going to need to power artificial intelligence.
That demand expectation ignited the power markets and even a report today seems to suggest that those demand expectations continue to be strong even though perhaps it’s clear that in some corners we were overestimating power demand growth.
Bloomberg reported that, “For much of the past two-plus years since ChatGPT kicked off the global AI frenzy, the industry has bet that the path to better AI depends largely on spending heavily on more advanced chips from companies like Nvidia Corp. (NASDAQ:NVDA) and increasingly massive data centers to house them.”
Today a report from the Oxford Institute for Energy pointed out that, “Data centers and AI applications are emerging as major drivers of electricity demand growth, despite currently constituting a small portion of global electricity demand. The growth of data centers is so rapid that it outpaces the technical efficiency improvements in cooling and IT hardware, leading to a substantial increase in electricity demand.
Projections suggest that data centers could account for up to 10% of total electricity demand globally by 2030, albeit still lower than demand growth driven by sectors like electric vehicles and space cooling. However, the spatial concentration of data centers in specific regions poses challenges for local grids”.
And while it’s way too early to say that this is going to be a death knell for the chip sector or even the power sector, what is clear is that this technology has the ability to rapidly change our assumptions. It also means that if we’re going to lead the world in artificial intelligence, we have to stay a step ahead. The assumption that the United States was just going to lead on this technology has been challenged and so we need to step up to the plate with our best and brightest.
The Wall Street Journal explained, “Why are investors worried about DeepSeek? The conventional thinking was that AI companies needed expensive, leading-edge computer chips—such as those made by Nvidia—to train the best systems. That has justified huge spending by the biggest U.S. tech companies, such as Alphabet (NASDAQ:GOOGL) and Meta Platforms (NASDAQ:META), which are sometimes known as hyperscalers. The Wall Street Journal also asked, “What makes DeepSeek work well?
In a paper published last week, the Chinese researchers behind DeepSeek said their new model would sometimes suddenly stop and realize it should re-evaluate its initial approach to a problem, and allocate more thinking time to do so. They described the behavior as the model having an “Aha!” moment. “Rather than explicitly teaching the model on how to solve a problem, we simply provide it with the right incentives, and it autonomously develops advanced problem-solving strategies,” the researchers wrote.
Is DeepSeek a disaster for AI stocks asks the Journal. “Not everyone thinks DeepSeek has upended the AI infrastructure industry. While DeepSeek might have found a way to cut AI training costs, AI demand keeps surging, and tech companies still need more computing power, wrote Stacy Rasgon, a Bernstein semiconductor analyst. “Is DeepSeek doomsday for AI buildouts?” Rasgon and his colleagues wrote in a report on Monday. “We don’t think so.”
Perhaps not but it is a wakeup call. And as I expected the selling in the NASDAQ and the concerns about power hip energy prices across the board and copper those markets seem to be bouncing back. There was some technical damage done to the crude oil market when it went below $73.00. This now means that we need to recover to continue to stay in an uptrend. If not there is the possibility we could be testing the old support lows near $70.00.
That brings us back to inventories. Tonight we get the American Petroleum Institute (API) report and we would expect to see significant draws in crude oil again and a significant drop in distillate inventories gasoline may see another increase because of the lack of movement because of the cold weather.
Also, more signs that Russian sanctions are starting to bite. Bloomberg reported that, “The rush to buy replacement cargoes for sanctioned Russian oil has pushed Middle Eastern crude prices to an unusual premium to the global benchmark. In normal times, oil in Dubai and the surrounding region trades at a discount to Brent as it’s more costly for refiners to process and turn into useful products such as gasoline and diesel. But buyers in India and China have been clamouring for Middle Eastern supplies to such an extent that they’ve pushed prices to exorbitantly high levels, according to Bloomberg.
Bank of America just came out with a report that they were expecting a surplus in oil at the end of the year but because of the Russian sanctions now they are expecting a deficit. I believe that we were seeing a deficit before the Russian sanctions came into place but that’s a story for another day.
Natural gas prices plummeted on warm temperatures and now we’re going to gauge the forecast to see if we can rebound going into the weekend. Reuters is reporting that Russia would like to see a resumption in the transit of gas via Ukraine, the Kremlin said on Tuesday, after the European Commission issued a statement saying it planned to continue talks with Kyiv on natural gas supplies to Europe. Russian gas supplies via Ukraine stopped on Jan. 1 after its transit contract expired and Kyiv declined to discuss renewing it, citing Moscow’s war against it. Slovakia and Hungary have since been pushing the EU to step in to restore the flow of gas to them through what is a major pipeline.