Europe is About to Enter its "AI Moment": Citi Names Top Stocks Worth Holding

Investing.com - Citi states that the global AI narrative is shifting from widespread enthusiasm to more selective focus, concentrating on companies that can turn technology into measurable operational benefits.

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This shift occurs after AI-related stocks experienced a period of volatility and investors’ scrutiny of the returns on large-scale capital expenditures increased.

Citi strategists wrote: “Global AI trading has become more selective, with growing concerns about technological substitution (such as in software) and the returns on large-scale capital investments.”

However, they added: “Recent re-pricing may lay the groundwork for a ‘new AI moment’ in Europe, as attention shifts toward AI adoption and tangible productivity improvements.”

The strategists noted that Europe is “underrepresented” in the broader AI discussion, but the region could benefit disproportionately from the next cycle, as productivity gains from AI adoption may be significantly reflected across various sectors.

On a macro level, the impact remains difficult to detect. Citi economists said Europe is still in the early stages of the AI adoption cycle, with little evidence so far that the technology has meaningfully boosted GDP growth or labor productivity.

The current phase is characterized mainly by increased investments in infrastructure, software, data, and skills, rather than immediate productivity gains.

EU investments related to AI have reached approximately €250 billion, about 1.2% of GDP, although spending still lags behind the US, where investment levels relative to the economy are roughly twice those of Europe.

From a stock perspective, strategists say AI trading is evolving from supporting companies (such as semiconductor and infrastructure providers) to those adopting the technology in their daily operations.

The bank emphasizes that sectors such as industrials, healthcare, information technology, communication services, and financials are most likely to benefit from AI-driven productivity improvements.

To capture these themes, Citi has launched two European stock baskets covering AI-related exposure: one focused on “pioneers,” i.e., companies providing the infrastructure behind the technology, and another on “adopters,” i.e., companies expected to benefit from AI-driven operational improvements.

The strategists stated: “This transition from ‘pioneers’ to ‘adopters’ is especially important for markets like Europe, where direct exposure to the tech sector is limited.”

The pioneer basket includes Siemens, Schneider Electric, ABB, Legrand, ASML, and Deutsche Telekom, while the adopter basket includes companies like HSBC, EssilorLuxottica, Volkswagen, Banco Santander, UBS, Siemens, and SAP.

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