Last week saw a sharper decline in European companies’ stocks that are embracing artificial intelligence, as the emergence of powerful new AI models raises concerns about their potential to overtake sectors like software and data analytics.
On Tuesday, European software stocks including Germany’s SAP and France’s Dassault Systemes experienced a downturn amidst growing concerns that AI could disrupt the software industry. This followed a downgrade of U.S. competitor Adobe by broker Melius Research on Monday.
Since mid-July, shares of market and data group LSEG, UK software firm Sage, and French IT consulting group Capgemini have fallen by 14.4%, 10.8%, and 12.3% respectively.
These companies, labeled as AI adopters by analysts, are investing significantly in AI technology to enhance their products and services. With a lack of European AI companies and suppliers, their shares had previously benefited as regional investors sought to capitalize on the AI boom driving U.S. markets.
However, the release of increasingly powerful AI tools seems to have prompted some market players to reassess their positions.
Recently, OpenAI unveiled its GPT-5 model, the latest advancement in AI technology that has transformed global business and culture since ChatGPT’s debut in late 2022.
Kunal Kothari, a fund manager at Aviva Investors, also noted the July 15 release of Anthropic’s Claude for Financial Services.
“The new app challenges the investment case around the London Stock Exchange (LSEG), specifically regarding financial data provision,” he commented.
“With each new iteration of GPT or Claude, the capabilities multiply, challenging current business models,” he added.
The decline in European AI adopter stocks contrasts with broader market growth. Since mid-July, London’s FTSE 100 rose 2.5% and Europe’s STOXX 600 increased 0.6%, while U.S. indices reached record highs, largely driven by tech stocks.
A contributing factor is that many European AI adopter stocks trade at high multiples, making them susceptible to negative news, according to Bernie Ahkong, Chief Investment Officer at hedge fund UBS O’Connor.
The STOXX 600 trades at an average price-to-earnings multiple of 17 times, while SAP, which has seen a 7.2% drop since mid-July after a significant daily decline on Tuesday, trades at around 45 times.
WILL AI ‘EAT SOFTWARE’?
Despite the struggles of many AI adopter stocks, some investors believe the market will eventually distinguish between potential winners and losers.
“Currently, it seems the market is categorizing everything as challenged,” said Aviva’s Kothari, referring to the decline in UK AI adopters.
The excitement surrounding new AI models has revived 2017 comments from Nvidia CEO Jensen Huang, stating “AI is going to eat software.”
“We agree to some extent, but differentiation is needed as not all software companies are equally vulnerable,” said Steve Wreford, portfolio manager at Lazard Asset Management.
He noted that companies with software deeply integrated into client workflows or with proprietary data that is hard to replicate still hold strong competitive advantages.
Paddy Flood, portfolio manager and technology sector specialist at Schroders, emphasized the importance of distinguishing between software types.
“Enterprise-grade applications are less exposed due to their critical nature, the complexity of replacement, and the value of a reliable vendor,” he explained.
Aviva’s Kothari highlighted the benefits of software deeply embedded with customers, using UK credit data firm Experian as an example.
“It possesses unique data and is deeply integrated into financial institutions’ workflows, necessary for loan issuance,” he remarked, also mentioning Britain’s Sage.
He holds stocks in both companies, along with LSEG, but warned that proprietary data alone may no longer suffice to safeguard businesses.
“I don’t think data alone offers enough protection anymore,” he stated.
The drop in AI adopter stocks may present an opportunity for investors to identify potential winners, suggested UBS O’Connor’s Ahkong.
“Some impacted companies could leverage AI for growth, but proving this will take time,” Ahkong noted.
However, the timeframe for companies to demonstrate AI-driven returns remains uncertain. Some investors cautioned earlier this year that time is running out for major AI investors to deliver results.
