‘AI shopping list’: Morgan Stanley names its top global picks to play the AI theme
The buzz around artificial intelligence may have quietened after a volatile week for some of the sector’s biggest names, but Morgan Stanley continues to see promise in a raft of European stocks. “Signs from a similar ‘growth scare’ phase in the mid1990s soft landing … suggest to us that European semiconductors (along with other AI winners) are experiencing a tactical correction and should make 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 ranging from semiconductor equipment and data center plays to software and healthcare companies. These stocks — described as “AI winners” by the bank — have returned around 44% on average since January 2023, outperforming the 14% jump recorded by the MSCI Europe benchmark, the analysts noted. Here are four of their overweight-rated stock picks to play the AI theme: ASML Morgan Stanley is bullish on Dutch chip machine maker ASML thanks to its “monopoly in leading edge lithography equipment.” “There is only one company capable of producing the extreme ultraviolet (EUV) lithography tools used to print design features at the required size for leading edge chips, and that is ASML,” analyst Lee Simpson said of the company, which counts AI poster child Nvidia and semiconductor giant TSMC as key clients. ASML’s next leg of growth, Simpson added, will come from additional orders from TSMC as it produces its N2 technology node, which is expected to be used in various Apple products from next year. Shares in ASML are traded on the Euronext Amsterdam and Nasdaq . Morgan Stanley has a target price of 1,000 euros ($1,092) on the stock, giving it over 27.5% potential upside. Segro Morgan Stanley describes British REIT Segro as the “landlord of Europe’s largest cluster of data centers.” The company’s £18 billion ($23.0 billion) portfolio includes 34 datacenters which generate 9% of group rent, analyst Bart Gysens noted. He added that Segro has “ambitious plans” to grow in this space, with its pipeline including projects with around £200 million of future rent to be delivered over the next decade. Segro is listed on the London Stock Exchange and Euronext Paris, and trades as an American Depository Receipt (ADR) in the U.S. Morgan Stanley has a target price of 1,050 pence on the stock, giving it around 18.6% potential upside. SAP Morgan Stanley is betting on German player SAP in the software solutions space as it is “well positioned to capitalize on the emerging generative AI market opportunity.” This is thanks to the large quantity of its business data and “business AI functionality,” which is embedded into its core products, analyst Adam Wood wrote. He also sees significant upside to margins as the company becomes more efficient and expands its cloud gross margins. Shares in SAP trade on the Frankfurt Stock Exchange and on the New York Stock Exchange . Morgan Stanley has a target price of 224 euros on the stock, giving it around 18.3% upside potential. Merck KGaA Also on Morgan Stanley’s list is German science and technology firm Merck KGaA , which operates as EMD Group in the United States and Canada. Analyst Thibault Boutherin expects “AI-related demand to accelerate growth for Merck KGaA’s Electronics business.” Its semiconductor division contributes 12% of the company’s overall sales. Merck is looking to grow this by between 7% and 10% in the medium term, “driven by higher demand for complex material for AI semiconductor manufacturing,” Boutherin added. Shares in Merck KGaA trade on the Frankfurt stock exchange and as an ADR in the U.S. Morgan Stanley has a target price of 200 euros on the stock, which represents around 20% upside potential. — CNBC’s Michael Bloom contributed to this report.
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