In this article, we discuss the 15 best European AI stocks according to Morgan Stanley.
There are several ways that investors are approaching the artificial intelligence (AI) boom that has been sweeping global markets since the end of 2022. The most obvious bets have been placed in sectors like semiconductors, software, and biotechnology, at least that is what investors in the United States have been up to. However, the habits of their European counterparts seem a tad different. Across the pond, stock pickers have been making bull calls on more established names to ride the AI wave, namely the utilities, commodities, and professional data providers, among others. Economic experts are describing this as the next phase of investments in the AI universe.
For example, Bernie Ahkong, an analyst at UBS, recently noted that the first phase of AI was interest towards chipmakers (read more about this by accessing 33 Most Important AI Companies You Should Pay Attention To). In the second phase, investors moved towards the industrial companies (read more about this by accessing 20 Industrial Stocks Already Riding the AI Wave) which actually supply the components to the data centers. The present tilt towards utility and power firms is quite possibly the third phase of this AI focus. Analysts at investment bank Morgan Stanley echo these sentiments. In a recent investor note to clients, released last week, these expert stock pickers underlined that even though the chaos around prominent AI firms has somewhat subsided, an AI rumbling in Europe is just about to begin. They attribute it to historical similarities to the mid-1990s, just before the internet craze.
According to Morgan Stanley analysts, European semi stocks are experiencing a tactical correction and should make new highs in the coming months. A basket of these equities, handpicked by these experts, and nicknamed AI winners, has returned close to 45% on average since January 2023, the beginning of the AI revolution. These firms, some of which are discussed in detail below, have outperformed the 14% jump recorded by the MSCI Europe benchmark, per the research. One indication of this is the demand for data centers. Kevin Restivo of CBRE recently highlighted that demand for data center space in Europe is set to outstrip delivery of new stock for the third straight year and AI demand will exacerbate the issue.
Our Methodology
For this article, we selected companies based in Europe who have been benefiting from the AI boom. An important investor note by investment bank Morgan Stanley on European AI stocks formed the basis for this list. These stocks are also popular among hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A futuristic datacenter with servers and high-tech equipment, signifying the company’s cutting-edge digital technology.
Best European AI Stocks According to Morgan Stanley
15. Infineon Technologies AG (OTC:IFNNY)
Number of Hedge Fund Holders: N/A
Infineon Technologies AG (OTC:IFNNY) designs, develops, manufactures, and markets semiconductors and semiconductor-based solutions worldwide. Even as geopolitical tensions and rapid industry innovation hinder the growth path of the firm, there are growth catalysts like silicon carbide production and AI power business that are driving bullish sentiment towards the firm for the next two years. The company, which often goes under the radar of chip investors, has a thriving AI power business. Latest earnings reveal that the sales for the AI segment of the firm will double by next year to over €400 million.
Analysts expect Infineon Technologies AG (OTC:IFNNY) to achieve EPS growth of 17% in the next fiscal year and 26% in the year after that, with revenue growth of 9.5% in the former and 12% in the latter. The firm is also working on the development of digital tools, linked to AI, that enhance resilience against external factors like geopolitics and natural disasters.
14. EDP, S.A. (OTC:ELCPF)
Number of Hedge Fund Holders: N/A
EDP, S.A. (OTC:ELCPF) engages in the generation, transmission, distribution, and supply of electricity in Europe, South America, North America, and internationally. It is based in Portugal. One of the reasons why this stock is attractive as an AI play is that it is performing well across most indicators even as power prices fall, making it an attractive choice to de-risk a growth-heavy portfolio. Earnings for the firm have continued to trend upwards despite low prices, the company has a low PE ratio, and is trading at a 34% discount compared to historical multiples. It also has an attractive yield and an unblemished payout history. The firm could work with regulators to increase payouts as it looks for fresh capital to fund AI infrastructure build.
UBS analyst Bernie Ahkong is bullish on EDP, S.A. (OTC:ELCPF), recently noting that one of the most interesting ways of playing the AI boom was with European utilities. This forecast seems grounded in reality. The International Energy Agency estimates that the total power consumption from data centers will be above 1,000 terawatt hours (TWh) by 2026, up from 460 TWh just two years ago.
13. Glencore plc (OTC:GLNCY)
Number of Hedge Fund Holders: N/A
Glencore plc (OTC:GLNCY) is a United Kingdom-based firm that engages in the production, refinement, processing, storage, transport, and marketing of metals and minerals, and energy products. Commodity stocks like Glencore have fallen behind the obvious names during the AI rat race, their importance in the overall equation notwithstanding. Even as iron futures undergo a blip, copper demand has surged due to the electrician and AI trends sweeping the business world. Copper is an important raw material in AI data center build. Glencore reported a copper production of more than 1 million metric tons in 2023.
Glencore plc (OTC:GLNCY) is in a prime position to capitalize on rising copper demand. According to commodity trader Trafigura, copper demand linked to data centers and AI could add up to one million tons by 2030. This, in turn, would lead to supply deficits, driving prices upwards. The copper boom sits at the heart of the AI craze.