1. European equities AI adoption
2. UBS report on AI in European markets
3. AI trends in European equities
The impact of artificial intelligence (AI) on European equities is less pronounced compared to the US, according to UBS strategists. While AI beneficiaries in Europe have seen a strong performance, the overall market influence remains limited. Factors like 10-year real yields and exposure to China have been more influential in driving market performance. Despite the fading importance of AI, UBS sees potential in high-quality, growth-oriented domestic stocks like Ryanair Holdings PLC and Enel. The shift towards economic fundamentals and improving growth prospects is expected to drive relative sector performance in Europe. This trend towards hard data is seen as a significant driver by UBS strategists.
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Artificial intelligence (AI) has been a hot topic in the world of investing, with many analysts and experts touting its potential to revolutionize various industries. However, according to UBS strategists, the impact of AI on European equities is not as pronounced as it is in the US.
In a recent note, UBS pointed out that while European stocks considered AI beneficiaries have seen strong performance, rising nearly 70% since early 2023, the overall influence of AI on the broader European market remains limited. In fact, European equities have lagged behind their US counterparts by about 12% and 20% compared to the S&P 500 and Nasdaq, respectively, since May last year.
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The UBS team used a machine learning model to analyze beta and alpha drivers in Europe and found that AI has not been a dominant factor in driving market performance. Instead, other factors such as 10-year real yields and Europe’s exposure to China have had a greater influence on the market.
Despite the diminishing importance of the AI theme in Europe, UBS sees potential in high-quality, growth-oriented domestic stocks. They highlighted companies like Ryanair Holdings PLC ADR, Aena, Enel, and Iberdrola as examples of European stocks that could benefit from a shift towards economic fundamentals and improving growth prospects.
UBS also pointed out a significant shift in the European market over the past 18 months, with European AI exposures and capital goods companies aligning with US market themes. This split became even more evident by early this year, with a clear distinction emerging between European yield and growth-sensitive stocks and those with US AI and Inflation Reduction Act (IRA) exposure.
While AI may not be as dominant in driving European equities as it is in the US, UBS believes that there is a rotation towards hard data becoming a more significant driver of relative sector performance in Europe. This shift towards economic fundamentals and improving growth prospects could present opportunities for investors looking to capitalize on the changing market dynamics.
In conclusion, while the impact of AI on European equities may be less pronounced compared to the US, there are still opportunities for investors to benefit from companies that are well-positioned to take advantage of shifting market trends. By staying informed and adapting to changing market conditions, investors can position themselves for success in the ever-evolving world of investing.