LIVE MARKETS-"Jevons Paradox": the new investor buzzword after Deepseek AI storm

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'JEVONS PARADOX': A NEW INVESTOR BUZZWORD AFTER DEEPSEEK AI SELL-OFF

Investors are dusting off their economics books following this week's Deepseek AI-inspired market tumble and they have a new favourite buzzword: the Jevons Paradox.

Tech stocks sold off on Monday on fears that the emergence of the low-cost Chinese artificial intelligence model would lead to less demand for chips, hurting Nvidia, whose shares are down 12.2% since then, as well as other companies in the supply chain

But looking to the long-term, the opposite could actually be true, and more efficient models might see more demand for chips. It has to do with efficiency and consumption, and depends on the work of 19th century English economist William Stanley Jevons.

"When Jevons studied coal consumption in relation to steam engine efficiency in the mid-19th century, he noticed that as steam engines became more efficient, coal consumption increased rather than decreased," wrote Mark Hawtin, head of the Liontrust Global Equities in a note.

"As AI gets more efficient and accessible, we could likely see AI skyrocket and turn into a commodity," said Hawtin who says AI is definitely the right thesis.

He's not the only one to be saying this.

"Demand for chips…if these claims are to be considered it may reduce the demand for computational power and, consequently, chips. However, the Jevons Paradox suggests that as the efficiency of models increase, overall consumption may also increase," write Karen Kharmandarian and Alexandre Zilliox, portfolio managers at Thematics Asset Management, an affiliate of Natixis IM, in a Thursday note.

They remain unconvinced that demand for chips will plummet given such advancements could promote adoption through economic means by lowering both training and inference costs.

Bank of America analysts also see the same playing out in the longer-term.

"...we expect advances at the model level to drive accelerated enterprise AI adoption and usage as chatbots, copilots and agents become simultaneously smarter and cheaper, a scenario known as Jevons paradox," a BofA note reads.

(Lucy Raitano)

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