European Investors Demand Results from AI Adopters as Patience Wears Thin

European AI Investments Under Scrutiny

European companies investing heavily in generative artificial intelligence (AI) are facing increasing pressure to demonstrate returns on their substantial investments. Investors, who have paid premium prices to join the AI market boom, are signaling that their patience may wear thin if concrete results are not evident by next year 1

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Market Shift from AI Enablers to Adopters

The AI investment landscape is experiencing a significant shift. While chipmaker Nvidia has become synonymous with the AI boom, with its stock up 29% year-on-year despite recent setbacks, European investors are becoming more selective 1

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. There's a growing preference for shares of companies adopting AI technology, such as information group RELX and software firm SAP, over those supplying chips and other hardware to the industry 2

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Impact of DeepSeek on AI Stock Performance

The launch of the low-cost Chinese AI model DeepSeek in January 2024 has had a significant impact on the AI stock market. This event triggered a tech selloff, particularly affecting hardware makers 3

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• ASM International: down 25%
• BE Semiconductor: down 20%
• Schneider Electric: down 14%

In contrast, AI adopters have shown more resilience:

• LSEG: down 5.5%
• RELX: down 1.6%
• SAP: down 2.9% (recently became Europe's most valuable company)

Investor Expectations and Timelines

A January 2024 internal survey of over 100 Fidelity analysts revealed that 72% expected AI to have no impact on company profitability in 2025 1

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. However, European portfolio managers are indicating shorter timelines for seeing returns:

• 2025: Companies likely to be given a pass, as beta testing and trials are expected
• 2026: Investors need to see a significant impact on top lines

Valuation Concerns

AI-exposed stocks are trading at premium valuations, raising concerns about sustainability without demonstrated results 2

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• STOXX 600: average P/E multiple of 17x
• AI adopters (e.g., SAP, LSEG): trading around 90x+ P/E

Bernie Ahkong, CIO at UBS O'Connor, warns that investors may begin questioning these multiples if companies don't deliver by the end of 2025 3

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The Quest for Killer Use Cases

Paddy Flood, portfolio manager at Schroders, emphasizes the need for viable use cases that people are willing to pay for 1

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. To justify continued spending, companies must demonstrate concrete applications, either through a single "killer" use case or a range of impactful ones.

European AI Market Dynamics

Fabio di Giansante, head of large European equities at Amundi, notes that the scarcity of European AI plays has led to premium valuations 2

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. However, most news from the sector has focused on orders and capital spending. Investors are now eager to see these investments translate into tangible benefits for top lines and margins.