European investors are pivoting from crowded, expensive AI chip stocks to infrastructure suppliers and banks that enable or benefit from the technology. With the tech sector making up just 9% of the Stoxx 600 versus 44% of the S&P 500, Europe lacks a deep bench of pure AI plays. This scarcity has driven valuations for semiconductor stocks like ASML to multi-year highs, prompting fund managers to trim positions and seek alternatives.
The "pick and shovel" trade is thriving in electrification and power supply, where companies like ABB, Schneider Electric, and Siemens Energy have posted double-digit gains. These firms supply hyperscalers with the physical infrastructure—power distribution, grid upgrades, and cooling systems—needed to run AI data centers. The EU’s €800 billion in green grants and Germany’s €500 billion fiscal package provide additional tailwinds, while valuations around 30 times forward earnings remain cheaper than the 45x multiple on European semiconductor stocks.
Banks are emerging as a surprising AI beneficiary, with Morgan Stanley estimating productivity gains of up to 50% over the next decade. Lenders like Santander and HSBC are embedding AI to cut costs and generate new revenue, trading at a discount of below 15 times forward earnings. This shift reflects a broader market realization that the AI trade is becoming more nuanced, rewarding companies that effectively adopt the technology rather than just those that build it.
What to watch next: Whether European industrials and banks can sustain their momentum as hyperscaler capex cycles evolve, and if the valuation gap between AI enablers and pure-play chip stocks narrows further.
Key Takeaways
- Europe’s AI trade is shifting from expensive semiconductor stocks to cheaper infrastructure and banking plays.
- Electrification and power supply firms like ABB and Siemens Energy are direct beneficiaries of hyperscaler data center buildouts.
- Banks could see up to 50% productivity gains from AI, making them a low-valuation, high-upside bet.
- The global AI trade is becoming more selective, rewarding companies that adopt AI effectively over those that supply hardware.
Insights & Analysis
- The pivot to infrastructure and banks signals a maturing AI cycle where value creation moves from innovation to implementation.
- Europe’s regulatory push for decarbonization could create a structural advantage for its industrial AI enablers, unlike the US where tech dominates.