Europe’s artificial intelligence bulls are dusting off a 160-year-old economic theory to explain the sector’s boom in stocks despite China’s cheap AI model DeepSeek emerging. The Jevons Paradox suggests that demand for AI may increase as prices fall, sparking debate among investors.
Tech stocks worldwide plummeted on January 27 after DeepSeek was launched, raising questions over West’s huge investments in chipmakers and data centres. Nvidia, a U.S. advanced chipmaker and AI poster-child, lost 17% of its value, or close to $600 billion, in the largest one-day drop in market capitalisation for any company on record.
Since then, tech stocks have rebounded, with European markets hitting new highs. Investors are now focusing on the Jevons Paradox, which states that when a resource becomes more efficient, demand can increase rather than decrease as its price drops.
“I hadn’t discussed it until Monday, and then suddenly it’s everywhere,” said Helen Jewell, Chief Investment Officer at BlackRock Fundamental Equities, EMEA. “This paradox highlights one of the uncertainties at the moment.”
The selloff hit direct and indirect AI plays alike. Portfolio managers at various firms cited Jevons Paradox as a reason they believe demand for AI chips may remain healthy.
However, not everyone is convinced, with Jordan Rochester, head of FICC strategy at Mizuho EMEA, stating that DeepSeek’s impact was less convincing in the short term after Nvidia’s meteoric rise.
Source: https://www.reuters.com/technology/artificial-intelligence/europes-ai-bulls-pin-hopes-jevons-paradox-after-deepseek-rout-2025-02-04