Europe's investment opportunity in AI lies not in creating foundational technology, but in its adoption. European companies leading in AI adoption are showing significant earnings outperformance and trade at a 27% discount to US equivalents, representing a distinct and undervalued growth angle.
Contrary to the dominant narrative of US market leadership, European equities have actually outperformed their US counterparts when measured in constant currency terms since the last US presidential election. This surprising trend is a fact that most investors may not realize.
For the first time in a decade, European equities have broken out of their long-term trend of a widening valuation discount versus the US. Historically, such breakouts signal the beginning of a sustained, multi-year period where this valuation gap narrows significantly from its current 23%.
The traditional debate between investing in cyclical or value stocks is irrelevant in the current European market. With stock-level dispersion consistently rising, the real opportunity lies in meticulous stock selection, which offers a better path to alpha than broad macro sector bets.