AI in Europe: From Spending to Earning

Europe captured less of the AI upside, but that is becoming an advantage as markets shift from spending to returns. AI Infrastructure represents c.15% of the STOXX 600 and only 2pp of its expected 9% earnings growth in 2027, versus c.40% of the S&P 500 and 9pp of its expected 13% growth. Across the eight largest AI-led sell-offs since 2023, Europe outperformed the US every time: the STOXX 600 rose 2% on average, while a broad AI basket fell 19% and the S&P 500 declined 4%. The S&P 500 is 3x more sensitive to the AI factor than the STOXX 600. On AI Phase 2, Infrastructure, we remain positive on US Hyperscalers as valuations look reasonable and balance sheets are strong, but with CAPEX growth peaking the focus shifts to durable competitive advantages; the Europe AI Phase 2 screen is down almost 15% from its summer peak, with its P/E falling from 23x to 18x. AI Phase 3, Revenue generation, is an attractive contrarian opportunity in European Software and IT Services, where valuations have