DeepSeek Sparks Selloff in US Industrials With Data Center Exposure

On Jan. 27, shares of industrial firms with data center exposure materially underperformed, with some falling by as much as 20%. This followed news that China’s DeepSeek developed an AI model with comparable capabilities to US-developed models, at a fraction of the cost.

Why it matters: Big Tech companies’ insatiable appetite for spending on AI data centers has driven a sharp increase in demand for equipment across the power generation, electrical equipment, and select construction end markets.

• Many industrial stocks with exposure to data centers have been among the best performers in the broad market over the past 12–18 months. This coincided with valuation multiples expanding beyond historical norms, as market excitement for data center spending drove narratives.

The bottom line: We believe the selloff is overdue, and have viewed industrial stocks with data center exposure as overvalued. We continue to believe data centers, reshoring, and the electrification theme will remain a tailwind in the years to come, but that market expectations went too far.

• We are maintaining our fair value estimates for Eaton ($274 per share), Hubbell ($365), GE Vernova ($265), nVent Electric ($60), Quanta Services ($188), and MasTec ($108).
• Despite the selloff, we see few opportunities in data center-exposed industrial stocks. As such, we recommend investors remain patient as the market continues to digest the trajectory of future AI spending.