Even as enthusiasm round synthetic intelligence (AI) has waned after a risky week for a few of the sector’s largest names, Morgan Stanley nonetheless sees large potential in a number of European shares.
According to an August 8 Morgan Stanley analysis report, “Signs of a ‘fear of growth’ phase similar to that of the mid-1990s… suggest that European semiconductors (along with other AI winners) are undergoing a tactical correction and should reach new highs in the coming months.”
Morgan Stanley’s European Shopping List: AI Winners
Morgan Stanley has recognized various European shares it sees as “AI winners,” spanning every part from semiconductor gear and knowledge facilities to software program and healthcare firms. Since January 2023, these shares have generated a median return of about 44%, outperforming the 14% enhance recorded by the benchmark MSCI Europe index, in line with the agency’s analysts.
Below are 4 of the shares rated “overweight” in Morgan Stanley’s technique to capitalize on the AI theme:
ASML: Mastery in Photolithography Equipment
Morgan Stanley is bullish on Dutch chip equipment firm ASML due to its “monopoly on cutting-edge lithography equipment.” According to analyst Lee Simpson, “There is only one company capable of producing the extreme ultraviolet (EUV) lithography tools needed to print design features in the size required for cutting-edge chips, and that company is ASML.”
ASML’s subsequent development increase will come from extra orders from TSMC because it produces its N2 expertise node, which is anticipated for use in a number of Apple merchandise beginning subsequent 12 months.
ASML shares are listed on Euronext Amsterdam and Nasdaq. Morgan Stanley has set a goal worth of 1,000 euros for the inventory, representing an upside potential of over 27.5%.
Segro: The Data Center Lessor in Europe
Morgan Stanley describes Segro, a British actual property funding belief, as “the landlord of Europe’s largest data centre group.” The firm’s portfolio, valued at 18 billion kilos ($23 billion), consists of 34 knowledge centres that generate 9% of the group’s complete hire, in line with analyst Bart Gysens.
In addition, Segro has “ambitious plans” to develop on this area, with a pipeline that features round £200m in future rental earnings to be delivered over the following decade.
Segro is listed on the London Stock Exchange and Euronext Paris, and likewise as an American Depositary Receipt (ADR) within the US. Morgan Stanley has set a goal worth of 1,050 pence, representing upside potential of round 18.6%.
SAP: Leading in Software Solutions with Generative AI
Morgan Stanley is betting on German firm SAP within the software program options area as it’s “well positioned to capitalize on the emerging generative AI market opportunity.” This is because of the huge quantity of enterprise knowledge and the “enterprise AI functionality” that’s constructed into its core merchandise, in line with analyst Adam Wood.
Additionally, Wood sees vital potential for margin enchancment as the corporate turns into extra environment friendly and expands its gross margins within the cloud.
SAP shares are listed on the Frankfurt Stock Exchange and the New York Stock Exchange. Morgan Stanley has set a goal worth of 224 euros, which represents an upside potential of roughly 18.3%.
Merck KGaA: Accelerating Growth in Electronics
Also on Morgan Stanley’s checklist is German science and expertise firm Merck KGaA, which operates as EMD Group within the United States and Canada. Analyst Thibault Boutherin expects “AI-related demand to accelerate the growth of Merck KGaA’s Electronics business.”
Merck’s semiconductor division contributes 12% of the corporate’s complete gross sales, and Merck is trying to enhance this to 7%-10% within the medium time period, “driven by increased demand for complex material for AI semiconductor manufacturing,” Boutherin added.
Merck KGaA shares are listed on the Frankfurt Stock Exchange and as ADRs within the USA. Morgan Stanley has set a goal worth of 200 euros, representing an upside potential of round 20%.
