Investing.com -- Barclays is warning that the recent surge in power stocks tied to the AI boom remains vulnerable to further shocks, particularly following concerns raised by the release of DeepSeek’s R1 Large Language Model (LLM).
In a recent note, the bank highlighted that power providers have been among the biggest winners of the AI boom, as the rapid expansion of data centers has driven expectations for soaring energy demand.
Barclays (LON:BARC) cited a U.S. Department of Energy study, which projects that electricity demand from data centers could increase by 14%-21% annually through 2030, potentially tripling to as much as 560 terawatt hours (TWh), or 13% of total U.S. electricity demand.
However, this bullish thesis came under scrutiny after DeepSeek introduced an AI model that "purportedly required few resources compared to traditional models from OpenAI, Google (NASDAQ:GOOGL), Meta (NASDAQ:META), etc.," said Barclays.
This sparked a sharp sell-off in power stocks, with names like Vistra, Constellation Energy (NASDAQ:CEG), and Talen Energy suffering some of the worst single-day declines on January 27—moves that even outpaced Nvidia (NASDAQ:NVDA).
“With their volatilities screening fairly rich, bearish risk reversals look attractive, as these take advantage of historically flat skews,” stated Barclays.
While power stocks have since rebounded, "the recovery from the sell-off trails other AI-sensitive stocks," Barclays noted, suggesting that investors remain wary of another AI-related shock.
Overall, Barclays proposes “hedges in AI-exposed power names to guard against further shocks amid the rapidly evolving AI narrative.”