DeepSeek’s AI Model Triggers Selloff Across European Electrical Equipment Suppliers
Demand from data centers is only one of the several secular growth themes these businesses enjoy.
News about DeepSeek’s R1 has raised questions about the true cost of AI models. Initially, these models appeared to be highly energy-intensive and a major driver of demand for electrical equipment suppliers.
Why it matters: Businesses selling equipment to data centers are viewed as major beneficiaries of AI investment. Should the cost decline (as DeepSeek’s model implies), the future demand for electrical equipment baked into the market’s rosy expectations will fail to materialize.
- Share prices of electrical equipment suppliers have fallen by 5%-20%. In Europe, declines have been most pronounced for Siemens Energy SMNEY (down 20%), Schneider Electric SBGSF (down 9%), and Legrand LGRVF (down 7%).
- Siemens has benefited from selling its gas turbines to enable power generation for data centers.
The bottom line: We’re keeping our fair value estimates unchanged for Siemens (EUR 27.5), Schneider (EUR 236), and Legrand (EUR 94). Demand from data centers is only one of the several secular growth themes these businesses enjoy.
- We view Siemens stock as overvalued, while shares in both Schneider and Legrand screen as fairly valued despite Jan. 27′s price declines. Schneider remains our preferred pick in the sector, due to its exposure to other secular growth themes, including grid modernization and building decarbonization.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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