Apple shares fell 9% Thursday — not surprising, iPhones are largely made in China, putting them soon behind a 65% tariff. Nike (down 14.5%) and Lululemon’s (down 9.5%) supply chains are now behind the formidable 46% tariff on Vietnam. But why is Vistra, which owns dozens of coal, gas, nuclear and renewable power plants in California, Texas, and along the East Coast, down 15%? Constellation, whose portfolio includes several nuclear plants, down 11%? GE Vernova, whose gas turbines are sold out until almost the end of the decade, down 10%? Some of the best performing stocks of 2024 are now some of the biggest laggards.
The biggest reason isn’t because natural gas or uranium or coal suddenly got more expensive (although uranium imports from Canada do face a 10% tariff). It’s because of anxiety about what the tariffs will do to economic growth — and electricity demand growth as a result.
The tariffs announced on Wednesday will be a major hit to the country’s economic trajectory according to almost every non-White House economist that’s looked at them. The Yale Budget Lab estimated that the April 2 tariffs alone would bring down GDP growth by half a percentage point, while Trump’s tariffs combined would bring down growth by 0.9 percentage points this year. Morgan Stanley economists echoed that finding in a note to clients Thursday. “Policy changes will weigh meaningfully on growth,” they wrote. “Downside risks will be larger if these tariffs remain in place.”
“Economic growth and energy consumption are pretty closely linked,” Aurora Energy Research managing director Oliver Kerr told me. “An economic slowdown tends to result in less demand for power overall. That's what the market is probably reacting to today.”
The downturn in power stocks also indicates that the market is not expecting any reindustrialization of America due to the high tariffs to happen in the near term. If it did, power producers might be in better shape, as factories are major consumers of electricity.
“Tariffs, in theory, could be a part of an economic policy arsenal to boost domestic production,” Kerr said. But without domestic incentives like those included in the Inflation Reduction Act or the Chips and Science Act, “it’s a tough case to make for why all of these factories should start opening all across the Midwest.”
Also lurking in the background is the same force that’s been driving the market performance of any company that owns substantial power capacity — especially if it’s clean firm, like nuclear, or dispatchable, like natural gas: enthusiasm around artificial intelligence. The power producers, the turbine manufacturers, and the chip designers were high flyers throughout 2024 thanks to optimism about a multi-hundred-billion dollar buildout of artificial intelligence infrastructure and data centers.
That optimism has flagged of late thanks to a series of reports from brokerage TD Cowen finding that Microsoft was shaving back some of its data center commitments. Now, Bloomberg is reporting that Microsoft “has pulled back on data center projects around the world, suggesting the company is taking a harder look at its plans to build the server farms powering artificial intelligence and the cloud.” The company has also “halted talks for, or delayed development” for data centers from Wisconsin to Indonesia, the Bloomberg report said.
That’s bad news for the companies like Vistra, GE Vernova, and Constellation that have ridden the wave of expected demand to stock market glory. “The main constraint that we see for AI load growth is power,” Kerr told me. But if there’s less load growth coming, then there’s less power we’ll need. Better start building some factories soon.
Turning over a new leaf on overcapacity? Xu Changliang/VCG via Getty Images
