Investors in energy stocks panicked recently over a cheaper AI model, but an old economic theory might soon turn the tide. The Jevons Paradox suggests that increased efficiency can boost demand—like how coal use dropped with steam engines, yet demand rose. Economist Nouriel Roubini and Morgan Stanley agree this applies to AI compute costs. DeepSeek’s development by a Chinese hedge fund hints at faster AI integration into consumer products. Meanwhile, companies like Chevron and GE Vernova are building power plants alongside data centers to meet their energy needs without relying on the grid, potentially driving demand up instead of down.
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**AI Could Reverse Energy Stock Drops Thanks to Economic Paradox**
Investors have reacted with panic this week over a cheaper AI model, but an economic theory could soon flip the script. The Jevons Paradox, first noted by William Stanley Jevons in 1865, posits that increased efficiency can drive higher demand—think how coal use decreased with steam engines yet rose in tandem with their adoption.
Economist Nouriel Roubini and Morgan Stanley energy analysts concur that this principle applies to AI compute costs. This could mean cheaper AI might not just lower expenses but also enhance the potential for innovation across industries, from consumer goods to research.
DeepSeek’s development by a Chinese hedge fund is another intriguing angle, suggesting that AI may accelerate integration into everyday products more rapidly than traditional AI companies or universities typically achieve.
Meanwhile, Chevron and GE Vernova are teaming up to build power plants alongside data centers. These facilities will provide all the energy needed by the data centers without connecting to the grid, ensuring a consistent and reliable supply—potentially boosting demand for electricity rather than reducing it.
As the market continues its rollercoaster journey, this new development could offer a glimmer of positivity for energy stocks, signaling that increased efficiency might finally start turning a profit. Investors will need to closely monitor how these developments unfold and whether they truly reverse the recent declines in energy-related stocks.
Source: https://www.axios.com/2025/01/29/deepseek-ai-china-chatgpt