DeepSeek Fires a Warning Shot at the D.C. Construction and Electric Utility Markets
The widespread concerns about DeepSeek*, the Chinese AI platform, typically revolve around privacy and security. But those of us who specialize in data centers are also wondering whether DeepSeek will ultimately pierce the armor of this booming industry—and, by extension, cause power demand to surge.
The Data Center Frenzy
The data center industry is in a full-blown expansion phase. A few years ago, 30-40 MW facilities were considered large; today, 200-300 MW data centers are becoming the norm, with some projects even pushing toward the 1 GW mark—enough to power nearly a million homes. This rapid growth is driven by AI’s insatiable need for computational power, with AI-ready server racks consuming up to 120 kW each—10 times what traditional servers required.
This surge in power demand is putting enormous strain on electric utility companies. The scale of this transformation is comparable to what happened during the Industrial Revolution. If you listen to the companies building these facilities, they project that global power demand could increase by 50% over the next decade. Unsurprisingly, utility company stock prices have soared in anticipation of these developments.
DeepSeek’s Challenge to the Status Quo
DeepSeek has now introduced a disruptive idea: What if the number of data centers required to meet future AI demands is actually 10 times lower than current projections? If true, this would fundamentally alter the outlook for the power industry. Instead of needing 50% more electricity worldwide, utilities might only require a 5% increase over the next 10 years. That’s a game-changing shift—one significant enough to warrant coverage from The Wall Street Journal.
A History Lesson: The Virtualization Disruption
To understand whether DeepSeek’s impact could be real, we need to look back at history. In the early 2000s, the data center industry experienced a similar boom, fueled by Moore’s Law and the rise of email, e-commerce, and ERP applications. Between 2000 and 2005, electricity consumption in data centers doubled, and forecasts suggested it would double again in half the time by 2007.
But then something unexpected happened. Around 2006, data center projects were abruptly put on hold. Why? VMware’s virtualization technology increased server utilization by a factor of 10, slashing demand practically overnight. Ironically, “10x” is the same term DeepSeek is using today. Is history repeating itself?
The Uncertain Road Ahead
DeepSeek claims its model can deliver 10 times the computing output with the same power consumption. If this claim is accurate, data center construction could see another downturn. But there’s another factor at play: AI services aren’t profitable yet. Companies are burning billions just to stay in the race—a scenario eerily reminiscent of the early 2000s.
So, will AI-driven data centers continue to grow unchecked, driving the construction of new power plants? Or will innovations like DeepSeek’s disrupt the trend and change the trajectory?
Data centers may be the new oil fields—but even oil fields run dry. As an eternal optimist about my business, I hope the impact won’t be as severe as the virtualization slump. But one thing is clear: the future of AI-driven infrastructure is anything but certain.
*New to the market in 2025 DeepSeek is an advanced AI search engine developed in China. Its gained notoriety due to the speed and revenue needed to create it.