LIVE MARKETS-AI divergence accelerates in Europe, spotlighting new sector winners – UBS

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AI DIVERGENCE ACCELERATES IN EUROPE, SPOTLIGHT ON SECTOR WINNERS

Investors are sifting through the rubble of last week's dramatic sell-off in software stocks, and are increasingly looking at stocks through the lens of AI winners and losers.

In a Monday note, UBS equity strategists say both AI use-cases and disruption seem to be accelerating in Europe.

Capital goods and utilities/renewables names like Siemens Energy ENR1n.DE, Prysmian PRY.MI and Nexans NEXS.PA are seeing strong growth stemming from the AI data centre build-out, they say.

Meanwhile UBS singles out companies with "valuable data, large customer bases, complex processes and high regulatory burdens" as also seeing strong performance.

That includes banks, insurers, logistics operators, retailers and healthcare providers.

"BNP Paribas and Nordea are seeing margin expansion as revenue outpaces costs; DSV and Tesco report strong growth from AI scheduling and optimisation; and Siemens Healthineers is showing margin strength in imaging where AI supports diagnosis and reporting," the team say.

When it comes to disruption from AI, UBS splits software into two broad categories.

On one hand "seat-based or labour-intensive" providers that lack deep enterprise integration face clear pricing and deflation risk. UBS mentions Teleperformance and Capgemini among that cohort.

In contrast, Europe's own software giant SAP SAPG.DE benefits from being embedded in enterprise architecture and is used to consolidate data and manage processes across divisions, UBS says.

SAP has been sold too aggressively according to the team.

Overall, they see many opportunities for AI winners in Europe. They flag banks Santander SAN.MC and Intesa Sanpaolo ISP.MI , retailers Inditex ITX.MC and Tesco TSCO.L , healthcare names Koninklijke Philips PHG.AS and AstraZeneca AZN.L , and transportation stocks Ryanair RYA.I and DSV DSV.CO .

Such names may "be overlooked for their potentially sharp profitability improvements from AI use-cases."

(Lucy Raitano)

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