As the AI boom continues to boost revenues on both sides of the Atlantic, European companies are mirroring the success of their American counterparts.
advertisementUS stock markets have soared on the back of first-quarter tech gains, with the Nasdaq topping 17,000 for the first time ever on Tuesday. In contrast, European markets, heavily influenced by the energy and healthcare sectors, have lost some luster in recent weeks. That said, the frenzy around artificial intelligence (AI) has been driving tech gains on both sides of the Atlantic. AI has become a powerful force for companies to embrace, with the technology sector leading the way.
AI remains a key focus in tech earnings calls
Artificial intelligence (AI) continues to drive revenue growth for technology companies, especially in the U.S. stock market. According to FactSet, 199 companies mentioned “AI” in the first quarter of 2024, the highest number in the past decade. The term “AI” was mentioned most frequently by Meta Platforms, Nvidia, and Microsoft, each mentioning it at least 50 times in their earnings calls. These three companies posted strong growth in the first quarter, with annualized revenues up 27%, 262%, and 17%, respectively. Year-to-date in 2024, their stock prices have increased 36%, 130%, and 14%, respectively.
Meanwhile, large European technology companies have not received as much buzz as their US counterparts. This can be attributed to a challenging macroeconomic environment as the Eurozone economy stagnates in the second half of 2023 despite a modest recovery in the first quarter. Moreover, the US-China trade tensions and China's economic slowdown are negatively impacting the profitability of European technology companies.
But the poor performance of these European companies could provide an opportunity for market valuations to rise. ASML, the most valuable European technology company, could benefit from the CHIPS Science Act, which provides subsidies to TSMC, Intel, Samsung and other major customers of the Dutch tech giant. Taiwanese semiconductor maker TSMC dominates the production of AI chips worldwide.
Siemens offered a similar outlook for the second half of the year, despite a 38% drop in net profit due to weak demand in China. The German tech conglomerate signaled continued strong momentum in the data center and power distribution markets in its earnings release. CEO Roland Busch said, “The unprecedented growth of AI applications is driving surging demand for electricity and a massive buildout of data centers around the world.”
Tech companies start to benefit from advances in AI
Since Microsoft released ChatGPT in February 2023, tech giants have been racing to develop AI-powered chatbot software. This AI race has now evolved into building supercomputing data centers to support training large-scale language models (LLMs), requiring billions of dollars of investment.
Nvidia is the primary direct beneficiary of the AI boom due to its exclusive designation as the leading provider of graphics processing units (GPUs). Other major US technology companies such as Microsoft, Alphabet, and Amazon are also beginning to benefit from large investments in AI development, as reflected in their first quarter earnings reports. These companies' cloud businesses have seen particularly strong growth and are benefiting greatly from advances in AI.
Echoing the US AI boom, German software company SAP announced a restructuring plan aimed at pivoting its business to focus on AI development, resulting in roughly 8,000 job cuts. The company reported strong first-quarter results, with revenue up 8% and cloud sales up 24%. As a result, SAP's shares have risen 8% since the results were released. SAP has expanded the AI capabilities built into premium versions of its cloud services. “Generative AI opens up new avenues for businesses to innovate and grow,” the company said.
Mining companies stand to benefit from AI boom
Software and chip makers aren't the only ones benefiting from the AI boom: mining companies are also doing well thanks to the surge in the price of industrial metals, especially copper. Shares of major mining companies such as Anglo American, Glencore, Rio Tinto and BHP are all trending higher thanks to the surge in metals prices.
In its production report, Glencore said it expects to hit the top end of its guidance range, supported by firm commodity prices. Moreover, the furor surrounding BHP's takeover bid for Anglo Americans has highlighted the profitability of the copper-producing industry. Anglo Americans shares have risen 30% based on year-to-date results.
