LIVE MARKETS-AI fears shake up European Tech, but opportunities are emerging

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AI FEARS SHAKE UP EUROPEAN TECH, BUT OPPORTUNITIES ARE EMERGING

European stock markets are undergoing sharp rotations beneath the surface, with software, data‑services and other digital‑economy stocks selling off as investors reassess the risks of AI‑driven disruption.

Despite the turbulence, Europe is “quietly outperforming” as global investors rotate away from crowded U.S. mega‑caps into Europe’s more attractive valuations, said Goldman Sachs.

The brokerage remains constructive on resilient names including ASML ASML.AS, SAP SAPG.DE and London Stock Exchange Group LSEG.L.

While Goldman notes software stocks are down 16% YTD, the concern is less about current earnings and more about future margin pressure from AI.

Software and IT services companies still enjoy profit margins roughly twice the European average, making them more exposed to competitive threats, says Goldman.

Morgan Stanley echoes Goldman's view, saying, valuations across TMT and business‑services names have fallen about 40% from 2025 highs, driven by fears that AI could erode pricing power or displace business models.

But the brokerage argues these worries are overdone in areas like credit bureaus, classifieds, music labels and parts of software.

Its preferred overweights include Experian EXPN.L, Scout24 G24n.DE, Universal Music Group UMG.AS and SAP SAPG.DE.

It is more cautious on staffing companies and IT services—areas it believes have weaker defences against AI competition. The brokerage flags Randstad RAND.AS, Hays HAYS.L, Page Group PAGE.L and Capgemini CAPP.PA as underweights.

Both brokerages note that AI‑exposed stocks are now deeply oversold. Morgan Stanley says many “debated disrupted” names trade at valuations implying worst‑case scenarios despite stabilising credit indicators and strong corporate bond market signals supporting broader European equities.

With Europe outperforming and global investors looking for diversification, Goldman Sachs and Morgan Stanley see opportunity — particularly in tech companies able to adapt to AI rather than be displaced by it.

(Kanishka Ajmera)

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