LONDON, Feb 4 (Reuters) – Artificial intelligence bulls in Europe are dusting off a 160-year-old economic theory to explain why the boom in the sector’s stocks may have further to run, despite the emergence of China’s cheap AI model DeepSeek.
Tech stocks worldwide plunged on Jan. 27 after the launch of DeepSeek – apparently costing a fraction of rival AI models and requiring less sophisticated chips – raised questions over the West’s huge investments in chipmakers and data centres.
At the heart of the selloff was U.S. advanced chipmaker and AI poster-child Nvidia (NVDA.O), opens new tab, which 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, and a 19th century economic theory is suddenly on everyone’s lips: the Jevons Paradox.
Named after English economist William Stanley Jevons, it posits that when a resource becomes more efficient to use, demand can increase – rather than decrease – as the price to use the resource drops.
“I hadn’t discussed it until Monday (last week), 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,” said Jewell, flagging that a key question for European stock-pickers is whether data centres and their suppliers will be less in demand.
“One of the big question marks from (last) Monday’s news is how much energy is going to be needed for the AI revolution?”
The selloff hit direct and indirect AI plays alike. Dutch semiconductor equipment maker ASML (ASML.AS), opens new tab, and sector peers ASMI (ASMI.AS), opens new tab and BE Semi (BESI.AS), opens new tab all fell 7%-12% on Jan. 27, before recouping losses later in the week, as did Siemens Energy (ENR1n.DE), opens new tab, which provides hardware for AI infrastructure.
“Jevons Paradox strikes again!” Microsoft chief executive Satya Nadella said in a post on X.
Source: https://www.reuters.com/
