European equity capital markets are witnessing a shift towards "real assets" and follow-on offerings, with investors seeking tangible value amidst concerns about tech and AI market volatility. This strategy aims to provide downside protection against macro-sentiment shifts. Private equity firms, for instance, are focusing on "real world, old economy assets" that can benefit from AI without being solely dependent on the trend.
While the European IPO market is slowly reopening, evidenced by potential listings like Franco-German tank maker KNDS and telco Digi Spain, these offerings prioritize fundamental business analysis over the "feverish excitement" generated by US tech giants. Upcoming IPOs like Hotel Investment Partners, RAC Group, and Waterstones are also being considered, offering investors opportunities based on tangible assets rather than speculative growth. US-based investment bankers are also seeing a push for more exposure to "real assets" due to the inflated valuations in the AI and tech sectors.
Simultaneously, a significant capital expenditure (capex) wave, primarily driven by US hyperscalers' investments in AI infrastructure, is creating opportunities for European industrial and grid suppliers. Goldman Sachs projects hyperscaler capex to reach approximately $754 billion next year, an 83% increase from 2025. This benefits European companies like Siemens Energy, Schneider Electric, ABB, and ASML, which supply critical components for data centers, grid connections, and power distribution. Roughly three-quarters of AI infrastructure spending goes to these physical components rather than just the chips themselves, directly benefiting these European entities. As long as this capex trend continues upward, these companies are well-positioned.
However, concerns exist regarding potential overcapacity and whether AI capex can deliver expected returns. Goldman Sachs itself has noted that tech companies might only capture about half the profit needed to justify the current pace of AI investment. A deceleration in hyperscaler capex growth could impact European suppliers even before hyperscalers feel the pinch, as equipment orders would likely be cut first.
Despite these concerns, the current environment suggests a robust interest in European equities. Goldman Sachs has raised its 12-month STOXX 600 target to 660, anticipating an 8% total return for the index in 2026, with earnings per share growth revised up to 10%. This optimism is fueled by strong capex, falling interest rates, and resilient corporate earnings, broadening the market rally beyond just tech stocks.
