The hype around artificial intelligence may have died down after a volatile week for some of the sector’s biggest names, but Morgan Stanley continues to see potential in a number of European stocks. “Signs of a similar ‘growth fear’ phase in the soft landing of the mid-1990s … suggest to us that European semiconductors (along with other AI winners) should see a tactical correction and reach new highs in the coming months,” the investment bank’s analysts wrote in an Aug. 8 research note. Morgan Stanley’s “European AI shopping list” includes names from semiconductor equipment and data center companies to software and healthcare companies. These stocks — dubbed “AI winners” by the bank — have returned around 44% on average since January 2023, outperforming the 14% rise in the MSCI Europe benchmark, the analysts noted. Here are four of their overweight stock recommendations to play the AI theme: ASML Morgan Stanley is bullish on Dutch chip machine maker ASML thanks to its “monopoly on cutting-edge lithography equipment.” “There is only one company capable of producing the extreme ultraviolet (EUV) lithography tools that can print design features at the required size for cutting-edge chips, and that is ASML,” analyst Lee Simpson said of the company, whose major customers include AI flagship Nvidia and semiconductor giant TSMC. ASML’s next leg of growth, Simpson added, will come from additional orders from TSMC as the company produces its N2 technology node, which is set to be used in various Apple products starting next year. ASML’s shares trade on Euronext Amsterdam and Nasdaq. Morgan Stanley has a price target of 1,000 euros ($1,092) on the stock, implying upside potential of over 27.5%. Segro Morgan Stanley describes UK REIT Segro as the “landlord of Europe’s largest data centre cluster.” The company’s 18 billion pound ($23.0 billion) portfolio includes 34 data centres that generate 9% of group rent, noted analyst Bart Gysens. He added that Segro has “ambitious plans” to grow in the space, with its pipeline including projects with around 200 million pounds in future rental income to be delivered over the next decade. Segro is listed on the London Stock Exchange and Euronext Paris, and trades in the US as an American Depository Receipt (ADR). Morgan Stanley has a price target of 1,050 pence on the stock, implying upside potential of around 18.6%. SAP Morgan Stanley is betting on German player SAP in the software solutions space because it is “well positioned to capitalize on the emerging market opportunity of generative AI.” This is thanks to the large amount of its business data and the “business AI functionality” embedded in its core products, wrote analyst Adam Wood. He also sees significant upside potential in margins as the company becomes more efficient and increases its cloud gross margins. SAP shares are traded on the Frankfurt Stock Exchange and the New York Stock Exchange. Morgan Stanley has a price target of 224 euros for the stock, which corresponds to an upside potential of around 18.3%. Merck KGaA Also on Morgan Stanley’s list is German science and technology company Merck KGaA, which operates in the US and Canada as EMD Group. Analyst Thibault Boutherin expects “AI-related demand to accelerate the growth of Merck KGaA’s electronics business.” The semiconductor division contributes 12% to the company’s total sales. Merck aims to increase this by 7% to 10% in the medium term, “driven by higher demand for complex materials for AI semiconductor manufacturing,” Boutherin added. Merck KGaA shares are traded on the Frankfurt Stock Exchange and as ADR in the US. Morgan Stanley has a price target of 200 euros on the stock, which corresponds to an upside potential of about 20%. — CNBC’s Michael Bloom contributed to this report.
Morgan Stanley names its best candidates worldwide for the current AI topic
