While the markets’ attention is focused on the economic slowdown in the eurozone and the energy shock caused by the conflict with Iran, a technology rally is quietly playing out in Europe. Although May’s data showed the sharpest drop in economic activity in the region in more than two and a half years, European companies linked to artificial intelligence are starting to keep pace with the US Nasdaq index.
Since the beginning of April, two baskets of AI-related stocks have generated more than two-thirds of the positive returns on European trading floors. The first, comprising the semiconductor supply chain with companies such as ASML, Infineon and STMicroelectronics, has gained around 20% since April. The second basket, focused on building data centre infrastructure and including players such as Schneider Electric and Prysmian, is up 22%. According to Davide Oneglia of TS Lombard, this performance allows regional AI leaders to compete with the US technology sector, as long as investors can cut through the macroeconomic noise.
The impetus for the sector’s resurgence has been the strong financial results of global giants, including Nvidia, which have allayed fears about the supposed overvaluation of AI spending. In parallel, a structural shift is taking place in Europe. Capital expenditure on AI infrastructure, defence and energy security has clearly increased over the past two years, and the current geopolitical conflict has paradoxically reinforced these trends.
For institutional investors, valuations may be the key argument. The European technology sub-index is currently trading at 28 times expected earnings, while the Nasdaq index is close to 35. This disparity means that the Old Continent offers relatively cheaper exposure to the global megatrend.
Although the broad STOXX 600 index has lost around 2% since the outbreak at the end of February, the regional technology sector has risen by 10% over the same period, reaching its highest level since 2000. This success, however, remains poorly reflected in the main stock market indices, as technology represents only 10% of the European benchmark, dominated by finance, industrials and healthcare. For those looking for growth, the conclusion is clear: deep beneath the surface of the difficult macroeconomic situation, Europe has fundamentally strong winners from the AI revolution.
