European companies that heavily invest in generative artificial intelligence must start demonstrating returns on their significant expenditures by the following year. Failure to do so could lead to investors losing patience after paying high prices to enter the market boom. AI-related stocks have experienced a downturn alongside broader equity markets recently, fueled by recession fears and pressure since the launch of the cost-effective Chinese AI model, DeepSeek, earlier this year.
Even though many investors are optimistic about the potential of Gen-AI to increase productivity and profits, some are becoming more discerning. They favor companies that integrate AI technology, such as information group RELX and software firm SAP, over those that provide chips and hardware to the industry. It is crucial for adopters to start displaying returns on their tech investments to maintain investor interest.
While chipmaker Nvidia has been closely associated with the AI surge, its shares were impacted by the introduction of DeepSeek's AI model. However, the stock has seen a 29% increase year-on-year. In Europe, there are fewer AI-related stocks compared to Wall Street, but a pattern is evident. Hardware manufacturers like chip equipment makers ASM International and BE Semiconductor have experienced declines since the DeepSeek-induced selloff. Conversely, companies embracing AI technology, such as data group LSEG and business software group SAP, have seen relatively smaller decreases in their stock prices.
According to Gerry Fowler, UBS's head of European equity strategy, the market focus has shifted towards identifying the direct beneficiaries of AI, rather than solely investing in AI enablers. A survey conducted by Fidelity analysts revealed that the majority anticipated no profitability impact from AI by 2025. Several European portfolio managers expressed that they have a shorter timeframe for expecting returns on AI investments, emphasizing the importance of demonstrating returns on AI investments to maintain investor confidence.