Despite the energy shock from the Iran war dampening economic growth, a strong rally in tech stocks has largely gone under the radar in European equity markets.
The war has paused 'Make Europe Great Again' trades, with regional shares expected to underperform U.S. peers as long as it persists. Data shows euro zone economic activity fell at its sharpest rate in more than two-and-a-half years in May.
Yet research from TS Lombard shows two baskets of AI-related shares account for more than two-thirds of the positive performance in European stocks over the past month and a half.
'The performance of our EU AI baskets since April is on par with the Nasdaq, just a touch behind Taiwan,' said TS Lombard European and global macro director Davide Oneglia. 'Look through macro chaos and don’t ignore European AI winners.'
One TS Lombard AI basket, made up of firms in the semiconductor supply chain such as ASML, Infineon and STMicroelectronics, has rallied by roughly 20% since the start of April. The other, up around 22%, is made up of companies in AI infrastructure buildout such as data centres and includes Schneider Electric and Italy’s Prysmian.
Gains in European tech shares are dwarfed by a 55% rise in the South Korean index over the same period, LSEG data shows. The Nasdaq 100 is up by roughly 21% and Taiwanese stocks have rallied by around 28%, the TS Lombard report shows.
AI INFRASTRUCTURE BOOST: A renewed focus on AI, highlighted by strong U.S. tech earnings, as well as a push by Europe to support tech infrastructure suggest the European tech share rally could have further to run. Seema Shah, chief global strategist at Principal Asset Management, noted Europe’s renewed focus on innovation in defence, energy security and AI infrastructure.
Even after recent gains, European tech shares have a cheaper valuation than U.S. competitors. The European tech stocks sub-index trades at almost 28 times expected earnings, compared with almost 35 times for the Nasdaq.
