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Story : Financial Post Copy Link Email X Reddit Pinterest LinkedIn Tumblr Europe Is More of an AI Powerhouse Than Most
Think(Click here or type SQUA to listen to Bloomberg’s new EMEA Equities Squawk) Author of the article:Bloomberg
NewsMichael MsikaPublished Aug 13, 20263 minute read Join the conversation You can save this article by registering for
free here. Or sign-in if you have an account. f5x{psue4[[zm6](ytoy6zjy_media_dl_2.png Bloomberg, Citigroup, UBSArticle
contentThe European stock market is packed with more than enough AI winners to offset its lack of technology shares.THIS
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your subscription. Activate your Online Access NowArticle contentThe region’s own version of the artificial
intelligence trade is helping to power a surprisingly strong year for the Stoxx 600 index. It’s kept pace with the S&P
500, despite a modest 9% exposure to tech, against 44% for the US benchmark. The performance is all the more striking
given Europe’s greater vulnerability to rising oil prices and slower economic and earnings growth. Article contentWe
apologize, but this video has failed to load.Try refreshing your browser, ortap here to see other videos from our team.
Back to video Article contentArticle contentA Citigroup Inc. basket of European AI enablers has rallied 46% over the
past year, less than the 60% surge in a portfolio of US AI winners, but with far less volatility along the way. While
semiconductors are the main drivers, Europe has much to offer beyond a few direct AI champions. Its industrial sectors
are heavily exposed to data center demand, while adoption of the technology has the potential to power the next leg of
the AI trade. Article contentTop StoriesGet the latest headlines, breaking news and columns.There was an error, please
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more newsletters? Browse here.Article content“Europe is in the very early stages of the AI adoption cycle,” said
Citi strategists led by Beata Manthey, pointing to industrials, healthcare, IT, communication services and financials as
poised to benefit. “The impact on real GDP and labor productivity thus far seems negligible, but there is potential
for substantial investments to facilitate AI adoption going forward.”Article contentIndustrials account for a fifth of
the Stoxx 600, the largest weighting after financials. The latest earnings season has confirmed Europe’s biggest
industrial companies as major players in the AI trade. Clear evidence of this came from power infrastructure names, with
electrical equipment manufacturer Schneider Electric SE and industrial automation provider ABB Ltd. flagging
triple-digit surges in data center demand as they raised their forecasts. Article contentArticle contentElectric cable
manufacturer Prysmian SpA has profited from European and US electrification needs for some time, but new winners are
emerging. Kingspan Plc surged this week after increasing its guidance on strong momentum in data center construction and
M&A deals. Even perceived AI losers such as software firms SAP SE and Capgemini SE, and advertising agency Publicis
Group SA have reported accelerating revenue linked to demand for the technology.Article contentPowerful, AI-inspired
gains mean that some industrial companies are now pricey. Meanwhile, the latest volatility episode in semiconductor
stocks made investors more cautious about the most-direct capex beneficiaries. The market now prices higher risks on
future growth and earnings. Article contentStill, some stocks look attractively valued considering the investment
cycle that’s expected to peak in 2028. Selectivity will be key to identifying which names to back, according to
Barclays Plc industrial analysts. Article contentAfter assessing about 500 data-center projects, the Barclays team
picked out overweight-rated Belimo Holding AG and Alfa Laval AB in cooling, plus Atlas Copco AB and VAT Group AG for
semiconductor-linked demand. Among reasonably valued electrical companies, they cited Schneider and Legrand SA. They are
cautious on power generation equipment suppliers Siemens Energy AG and Wartsila OYJ Abp, which both have underweight
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below. Article contentAnalysis of earnings transcripts shows that AI gains are increasingly broad-based. “Measurable
benefits from AI are spread out across multiple sectors,” said Barclays strategists including Magesh Kumar
Chandrasekaran. “Notably, measurable cost and efficiency benefits have emerged as a key discussion point, with
increasingly meaningful commentary on realized gains,” the strategists said. Article contentEurope is arguably in a
sweet spot. Corporate balance sheets are healthy and free cash flow yields are much higher than in the US. With S&P 500
companies focusing on capex rather than buybacks, European peers have a card to play: a market with bigger shareholder
returns, lower stock issuance, healthier financials, and significantly fewer of the AI risks linked to semiconductor
volatility or Chinese competition. Article contentWhile Europe clearly trailed in the early part of AI innovation, this
isn’t necessarily a bad thing, according to Goldman Sachs Group Inc. strategists including Sharon Bell. Rather, Europe
needs to ensure it capitalizes on AI’s potential for productivity gains, especially given the region’s sharply aging
population, the strategists said. Europe is behind in data center roll out, and will need to spend considerably more on
energy infrastructure to support this. That’s expected to trigger a supercycle for its utilities.Article content“We
have seen previous waves of technology where the first movers and innovators overspend, and the companies that
ultimately benefit are those able to take advantage of the original investment, not those that pay for it,” they
said. Article content Share this article in your social network Share this Story : Financial Post Copy Link Email X
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