Microsoft's data center worries continue to persist, as Europe's top AI companies slide further.
The sentiment of some of Europe's top AI stocks was dampened for a second consecutive day on Tuesday after an analyst report late last week, which warned of a possible slowdown in Microsoft data centre leasing, impacted the market ahead of Nvidia's make-or-break earnings.
In less than a week, the Chinese DeepSeek artificial intelligence model was released. This triggered a sell-off of tech stocks and a reassessment on how much Western companies spend on infrastructure and development.
TD Cowen analysts stated in a late Friday note that Microsoft has cancelled leases on a large amount of U.S. Data Centre capacity in the United States.
Shares of companies exposed to datacentres, which are powered by Nvidia's chips, have been selling for a second consecutive day.
Microsoft's AI and cloud investment plans are still on track.
After falling by 4% on Monday, shares of Germany's Siemens Energy fell 3.5%. Shares of French electrical equipment manufacturer Schneider Electric also dropped 2.5%.
Dan Ives, Wedbush Tech analyst, said: "The market has a heavily negative bias right now in terms of tech sentiment. Any whispers of worry/concern about anything from DeepSeek capex to Microsoft's DeepSeek are having a devastating ripple effect across the entire tech ecosystem."
Prysmian shares, the largest cable manufacturer in the world, dropped 2% on February 2nd after falling 4.5% Monday. ABB shares fell 1% on Tuesday, after a drop of 4.7% the previous day, when ABB's management spoke with analysts.
Citigroup analysts wrote in a post-call note that ABB believes this is a way for Microsoft to "take stock" and determine where they are at. It's not a major turning point.
UBS said that the market reaction was another "DeepSeek Moment" and presented an opportunity to buy, while Barclays stated that it could take some time for investors to determine if this new development is specific to Microsoft or a sign broader change.
Steve Wreford is the lead portfolio manager/analyst for the global thematic equity group at Lazard Asset Management. He also co-manages assets worth around $1.5 billion. Steve Wreford said that AI spending was still a winner takes all scenario.
He said that the latest developments at Microsoft could reflect a more measured buildout of data centres.
The tech shares have been volatile in the week leading up to Nvidia's results. Investors will be looking for proof that the company's high valuation is justified, and that its outlook remains strong. (Reporting from Lucy Raitano in London and Samuel Indyk; editing by Amanda Cooper, Alexandra Hudson and Amanda Cooper)
(source: Reuters)
