As AI develops, a shift in expectations for electricity demand is becoming more evident. The emergence of Chinese artificial intelligence company DeepSeek has led to uncertainty about future electricity consumption, impacting utility and power stocks.

Investors in the traditional power and utilities sector are facing uncertainty after riding last year's wave of soaring demand projections. The rapid expansion of energy-intensive data centers—critical to AI and other tech innovations—had fueled a surge in power stocks. However, the question mark on this forecast has brought power-focused ETFs back into the limelight for the wrong reasons. Although experts believe this is most likely a temporary panic, here are 3 ETFs that may be less sensitive to short-term chaos:

Utilities Select Sector SPDR Fund XLU

XLU provides exposure to major U.S. utility companies, including American Electric Power Co. AEP and Southern Co. SO. The ETF is a popular choice for investors seeking stable returns and dividend income from regulated utilities, which are less sensitive to short-term market disruptions. The expense ratio is 0.09%.

Invesco S&P 500 Equal Weight Utilities ETF RSPU

Traditional utility ETFs are market-cap weighted. On the contrary, this ETF assigns equal weight to its holdings, which allows the investor to spread out risks. It includes companies involved in electricity production, transmission, and renewable energy, making it a potential hedge against volatility in the energy sector. The expense ratio is 0.4%.

First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund GRID

GRID focuses on companies engaged in smart grid technology, electrification infrastructure, and power transmission. As the U.S. accelerates its shift to renewable energy, investments in smart grids and electricity storage could benefit from long-term demand growth, regardless of AI-related fluctuations.

Also Read: DeepSeek Shakes Up AI Stocks: 3 Healthcare Tech ETFs Offer Stability, Innovation

The AI Revolution and Its Impact on Power Demand

The DeepSeek issue challenges long-standing projections about electricity demand driven by AI data centers. DeepSeek’s AI model, reportedly uses “10 to 40 times less energy” than similar U.S. models, according to a report by E&E News.

Utilities and natural gas companies, which had been soaring on expectations of rising AI-driven electricity demand, suffered steep losses. According to Reuters, independent power provider Constellation Energy CEG plunged by about 20%, Vistra VST dropped 30%, and Talen Energy TLN fell 22% after news of DeepSeek’s advancements hit.

While some experts believe this could reset expectations for power growth, others argue that broader electrification trends, including U.S. manufacturing expansion and cryptocurrency mining, will keep electricity demand high.

“Overall electricity demand is still going to surge because other major drivers — particularly U.S. manufacturing and cryptocurrency — are not going to be affected by DeepSeek,” said Betsy Soehren Jones, managing director at West Monroe, as reported by E&E News.

DeepSeek’s accomplishment could even cast doubt on nuclear power demand, which tech companies see as a key source of clean energy for AI development. Investors have expected high premiums for nuclear power, over $100/MWh, but new efficiency gains may change that, Jefferies said in a client note, according to Argus Media.

Lower AI data center power demand could also weaken support for next-generation small modular reactors (SMRs), backed by companies like Alphabet Inc GOOG GOOGL and Microsoft Corp MSFT.

Also Read: DeepSeek’s Low-Cost Model Reshapes AI Landscape: Experts Predict Shift To ‘Application Layer’

What BofA Says About the Power and Utility Sector

A recent Bank of America (BofA) report suggests that the power and utility sector remains resilient despite the short-term market reaction to DeepSeek’s AI model. The report maintains a Buy rating on Constellation Energy with a revised price target of $366 and a Neutral rating on Vistra with a target of $183.

BofA analysts see the sell-off as an overreaction and expect data center demand to stay strong once the turbulence subsides.

The report describes DeepSeek as "more evolutionary than revolutionary" and that AI-driven data centers will continue to drive power consumption.

Additionally, BofA notes that supply and demand pressures in the energy market remain tight due to industrial expansion and electrification. The need for stable energy sources like nuclear power remains essential.

Will DeepSeek Really Change The Power Scenario?

While DeepSeek's AI model has introduced uncertainty in the short term, some analysts believe the sell-off in power stocks may be “short-sighted and short-lived,” as energy economist Ed Hirs noted, per a Reuters report. Even with more efficient AI models, demand for electricity is likely to rise due to continued digitalization and electrification.

All said, despite the sharp reaction in the market, broader trends in electrification and technology-driven growth suggest that electricity consumption will keep rising.

Read Next:

• AI ETFs In Focus As Alibaba Challenges DeepSeek With New Model

Photo: Sundry Photography/ Shutterstock.com