Uranium

Uranium stocks tumble as DeepSeek raises doubts about AI energy demand

Tue 28 Jan 25, 12:17pm (AEDT)
Uranium 4 Nuclear
Source: iStock

Key Points

  • Uranium stocks like Paladin Energy, Deep Yellow and Lotus Resources opened 10-20% lower on Tuesday after China's DeepSeek suggests AI can be done at a fraction of the cost
  • DeepSeek claims its large language model operates at ~95% lower costs than its US competitors, raising concerns about projected energy demands for AI development
  • Investors are aggressively selling uranium stocks amid concerns about AI-related energy needs

While tech stocks have taken a hit from the DeepSeek-related news, uranium stocks are experiencing a much steeper decline, with most ASX-listed names down 10-20% in early Tuesday trading.

DeepSeek claims to have developed an efficient large language model (LLM) at a fraction of the cost of its US rivals like OpenAI and Alphabet. According to the company, training its DeepSeek V3 cost approximately US$5.5 million, compared to over US$100 million for OpenAI's GPT-4.

While comprehensive cost breakdowns aren't publicly available, the operational costs through API usage also show significant differences. For example, generating 1 million tokens costs $60 with GPT-4, while DeepSeek R1 charges just $2.19 — making DeepSeek's service approximately 95% cheaper for comparable tasks.

Why Does This Matter?

Power consumption is set to skyrocket as big tech companies pour tens of billions into AI development. According to a November 2024 McKinsey & Co report, power demand for US data centers is projected to reach 606 terawatt-hours by 2030 — a more than 300% increase from 2023 levels. This surge would represent 11.7 percent of total US power demand, creating what McKinsey describes as significant "opportunities for investors to bridge demand gaps, especially via renewable-energy solutions, and to address infrastructure needs."

Faced with this looming energy crunch, major tech companies made a dramatic pivot toward nuclear power in October 2024, with three industry leaders announcing groundbreaking nuclear initiatives within weeks of each other:

  • Alphabet partnered with Kairos Power to develop small modular reactors (SMRs). This collaboration marks "the world's first corporate agreement to acquire nuclear energy" from SMRs, with the initial reactor expected to come online before 2030.

  • Amazon anchored a US$500 million investment round for X-Energy to develop small advanced modular nuclear reactors. The company aims to develop more than 5GW of new power projects across the US by 2039

  • Microsoft signed a 20-year power purchase agreement with Constellation Energy to restart Unit 1 reactor at Three Mile Island. This agreement is part of the launch of Crane Clean Energy Centre (CCEC), which seeks to add over 800MW of carbon-free energy to the grid.

The cluster of announcements sent a uranium benchmark like the Global X Uranium ETF up 15% between 10-21 October 2024.

The market is now grappling with concerns about lower energy demand, as an emerging Chinese AI company showcases its ability to achieve results comparable to leading US peers while using a fraction of the computing power.

DeepSeek's V3 model required approximately 2.7 million GPU hours to pre-train — just 9% of the compute needed to train Meta's LLaMA 405B model, according to global asset manager Bernstein.

"The model looks impressive. In fact, it performs as well or better on numerous language, coding, and math benchmarks than other large models, all while requiring a fraction of the compute resources to train," Bernstein's report highlighted.

If this proves true, how might it reshape the aggressive energy forecasts made by various agencies?

Uranium stocks tumble

The local uranium sector is facing a steep selloff, with most names down 10-20%, erasing most of their year-to-date gains. The top losers today include:

Ticker

Company

% Chg

LOT

Lotus Resources

-19.6%

BMN

Bannerman Energy

-18.4%

DYL

Deep Yellow

-15.4%

AEE

Aura Energy

-13.7%

AGE

Alligator Energy

-13.1%

PEN

Peninsula Energy

-11.7%

PDN

Paladin Energy

-11.5%

ASX uranium stock performance as of 11:55 am AEDT

Short sellers have been aggressively targeting the uranium sector over the past few months, with Boss Energy and Paladin Energy emerging as the most shorted stocks. Persistent weakness in uranium prices, operational challenges, and valuation concerns have been key reasons for this bearish activity. Now, the DeepSeek surprise adds further strengthens the bearish thesis for this volatile sector.

 

 

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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