Europe's AI Stocks Tumble on Microsoft Data Center Concerns

Europe's AI-linked stocks experienced a second consecutive day of losses, fueled by uncertainty surrounding Microsoft's data center leasing plans, Reuters reports. This follows a weekend analyst note suggesting a slowdown in Microsoft's data center expansion, impacting sentiment ahead of crucial earnings reports from Nvidia, a key player in the AI chip market.

The sell-off comes just weeks after the emergence of China's inexpensive DeepSeek AI model triggered a global tech stock slump and raised questions about Western companies' spending on AI development and infrastructure.

TD Cowen analysts stated in a Friday note that Microsoft had canceled leases for substantial US data center capacity. While Microsoft has maintained that its AI and cloud capacity investment plans remain on track, European companies with exposure to data centers are experiencing significant share price drops.

Siemens Energy, whose shares have surged over 600% since October 2023, fell 3.5% on Tuesday. Schneider Electric, a French electrical equipment maker, also experienced a 2.5% decline.

"The market is heavily skewed negative right now around tech sentiment with any whisper of worries/concern from DeepSeek to Microsoft capex causing a brutal ripple impact across the tech ecosystem," Wedbush tech analyst Dan Ives told Reuters.

Companies like Italy's Prysmian, the world's largest cable maker, and Swiss engineer ABB also saw their shares decline, with ABB's management holding a call with analysts on Monday to address the situation.

Citigroup analysts, following the call, suggested that Microsoft's actions were intended to "take stock and see where we are" rather than signaling a major shift in strategy. However, the market reacted with concerns, with UBS calling this a "DeepSeek moment" and Barclays stating that investors may need time to determine if this is a Microsoft-specific issue or a broader trend.

Steve Wreford, co-manager of around $1.5 billion in assets at Lazard Asset Management, described the AI landscape as a "winner takes all" scenario in terms of big tech spending. He suggested that Microsoft's recent developments may reflect a more cautious approach to data center expansion.

The volatility in tech stocks is expected to continue this week, with investors closely scrutinizing Nvidia's quarterly results on Wednesday for evidence to support the company's high valuation and its robust product outlook.