European TMT earnings and AI momentum Report Interpretation

Overview

This weekly European TMT commentary argues that the rotation away from AI beneficiaries has reversed as earnings evidence continues to support the AI investment cycle. It highlights Nokia, ASML, ASM International and STMicroelectronics as preferred semiconductor opportunities while reviewing earnings-driven debates across software, telecoms and information services.

Core views

The report argues that the week ended with a more constructive AI backdrop: European semiconductor shares recovered and the earlier rotation into perceived AI losers reversed. In the author's view, the correction reflected positioning and de-grossing rather than deteriorating fundamentals. Desk flows turned into better buying across ASML, ASM International, Infineon, Aixtron and Siltronic, with emerging long-only interest in quality names at discounted valuations. The report nevertheless cautions that low exposure after aggressive de-risking can create outsized moves on even modest re-risking, leaving open the question of whether the rally becomes durable re-grossing or merely positioning ahead of further confirmation of AI fundamentals. Comments attributed to OpenAI's CFO—that July ARR additions exceeded those generated in all of the second quarter—are cited as evidence against concerns that token demand has peaked or that pricing and open-source competition have already weakened AI demand. Nokia is the report's idea of the week. Its AI order intake of €2.8bn materially exceeded the €1.3-1.5bn buy-side expectation range, while management offered reassuring comments on the sustainability of demand despite supply constraints. The author considers the results exceptionally strong and notes that the shares had fallen by more than 40% from their highs amid de-grossing. With cleaner positioning, two consecutive quarters reinforcing the investment case, and investor discussion of a 20-25x multiple, the report says €12-15 per share could be justified on 2028 numbers. It also notes Nokia short interest at one ADTV to cover, or 1% of free float. The discussion references underwriting 2028 EPS of roughly €0.65-0.70 as supporting meaningful upside scenarios. ASML is presented as another key AI-capex beneficiary. Management reiterated that its planned 85 EUV tools in 2027 reflects the current supply-demand balance rather than a production ceiling, and outlined a path to about 110 tools in 2028 within the existing manufacturing footprint. The report sees 110 as a conservative starting point, while investors are modelling roughly 90-95 tools for 2027 and 110-120 for 2028. This has lifted 2028 EPS expectations from around €60-65 before results to €70-75, with some bullish cases near €80. At about 22x 2028 earnings, the author considers the valuation attractive for a monopoly. China domestic-DUV headlines are viewed as sentimentally unhelpful but not a near-term change to the thesis because technological and manufacturing barriers remain substantial. Other semiconductor views remain constructive but differentiated. STMicroelectronics trades at about 14x 2028 earnings versus a mid-20s multiple only weeks earlier; earnings disappointed against high expectations, but the report says its longer-dated earnings power and AI infrastructure and satellite opportunities are largely unchanged, although the shares may trade sideways for some time. ASM International delivered third-quarter revenue guidance about 6% above consensus and investors are looking toward a roughly €1.2bn fourth-quarter revenue run-rate. The report estimates that, if ASM achieves mid-€30s 2027 EPS and mid-€40s 2028 EPS, its roughly 20x valuation becomes increasingly attractive; it also describes a possible FY2027 revenue outcome near €5.5bn, 11% above consensus, and earnings 20% above consensus if the company outgrows wafer-fab-equipment growth. For Infineon, investor expectations for forthcoming results appear achievable, while the longer-term upside debate centers on AI-power revenue and the Dresden ramp. The author notes supply availability will influence the scale of any near-term revenue beat and whether April and July price increases enable higher revenue and margin guidance. Outside semiconductors, the report sees SAP's more than 20% post-results move as chiefly a positioning and AI-laggard rotation rather than a fundamental reset. AI adoption and monetisation remain mixed, the macro backdrop is challenging, and investors question whether margin expansion is sustainable after second-quarter cost pressure. Telefónica delivered a modest beat and upgraded operating-cash-flow guidance, but the absence of an EBITDA upgrade led to debate over management conservatism versus greater caution on Brazil, which contributes about 30% of group revenue. Orange's second consecutive beat-and-raise supported a roughly 6% rally, with Africa growth and improving France trends supporting the bullish thesis, although Spain remains mixed and French-consolidation regulatory developments are not expected before year-end. Vodafone's beat is viewed sceptically because it was led by the opaque Enterprise division, underlying customer metrics remain weak, and no earnings call was held. Finally, the report argues that AI can enhance rather than replace the systems of record and workflows of RELX and Wolters Kluwer; it prefers RELX for the long term but sees Wolters Kluwer as the larger near-term re-rating opportunity if confidence in AI-led growth improves.

Analysis framework

The commentary combines earnings results and management guidance with investor feedback, trading-desk flow observations, valuation multiples, consensus expectations and longer-dated earnings scenarios. It separates changes in operating fundamentals from price moves attributed to positioning, de-grossing and sector rotation.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  Forward earnings-multiple valuation

  The report compares stocks against stated 2027-28 earnings multiples and uses investor-underwritten EPS to discuss valuation scenarios, including Nokia, ASML, STMicroelectronics and ASM International.

• Industry AnalysisUpstream-Midstream-Downstream Transmission

  AI investment-cycle supply-chain analysis

  The report links AI demand and hyperscaler capital spending to semiconductor equipment capacity, AI-power demand, and the earnings outlook for European semiconductor suppliers.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Nokia

  Preferred AI-networking opportunity after strong results and a sharp correction.

  Strengths

  €2.8bn AI orders exceeded investor expectations; management commented positively on future demand.

  Comparison

  Investor feedback supports a 20-25x multiple and a €12-15 per-share 2028 scenario.

  Risks

  Ongoing supply constraints and a potentially fragile market backdrop.

• ASML

  Preferred semiconductor-capital-equipment AI beneficiary.

  Strengths

  Pricing and capacity detail supports rising 2028 EPS expectations; EUV capacity can increase if demand warrants.

  Weaknesses

  Remains a relatively crowded position, albeit at smaller size.

  Comparison

  At 22x 2028 earnings, the report considers valuation attractive for a monopoly.

  Risks

  China domestic-DUV headlines may weigh on sentiment despite no stated near-term earnings impact.

• ASM International

  Semiconductor equipment name with a strong quarter and potential earnings upside.

  Strengths

  Q3 revenue guide was roughly 6% above consensus; management expects to outperform WFE growth in 2027.

  Weaknesses

  Fragile semiconductor sentiment may limit near-term multiple expansion.

  Comparison

  Potential FY2027 revenue near €5.5bn is described as 11% above consensus, with earnings 20% above consensus under the report's assumptions.

  Risks

  Investors may remain reluctant to re-gross risk.

• STMicroelectronics

  Semiconductor idea whose valuation has compressed after an earnings disappointment.

  Strengths

  Longer-dated earnings power and AI infrastructure and satellite opportunity are described as intact.

  Weaknesses

  Near-term earnings disappointed against elevated expectations.

  Comparison

  Trades at roughly 14x 2028 earnings versus a mid-20s multiple only weeks earlier.

  Risks

  The report expects the stock could trade sideways for some time.

• Orange

  Telecoms name supported by continued earnings execution.

  Strengths

  Second consecutive beat-and-raise; Africa growth and improving French trends support the thesis.

  Weaknesses

  Spanish trends remain mixed.

  Comparison

  Shares traded around 6% higher after results.

  Risks

  Regulatory progress on French-market consolidation is unlikely before year-end; fast rotations keep long-only investors cautious.

• Wolters Kluwer

  Information-services company viewed as a potential AI beneficiary and near-term re-rating opportunity.

  Strengths

  AI may enhance workflows, systems of record and addressable markets; positioning is becoming supportive.

  Weaknesses

  Still viewed as part of the 'broken business' basket.

  Comparison

  The report prefers RELX for the long term but sees greater near-term re-rating potential in Wolters Kluwer.

  Risks

  The thesis depends on confidence building in AI-driven growth and second-half acceleration.

Key data

• Nokia AI orders€2.8bnVersus €1.3-1.5bn buy-side expectations.
• Nokia share-price correctionMore than 40%Recent decline from highs before the reported results.
• Nokia valuation scenario20-25x multiple; €12-15/shareInvestor feedback based on 2028 numbers.
• ASML EUV capacity85 tools in 2027; approximately 110 in 2028Management described 85 as a supply-demand balance, not a hard production ceiling.
• ASML 2028 EPS expectations€70-75; some cases near €80Up from roughly €60-65 before results.
• ASML valuation22x 2028 earningsThe report considers this attractive.
• ASMI Q3 revenue guidanceRoughly 6% above consensusInvestors also point to a roughly €1.2bn Q4 revenue run-rate.
• Orange share moveAround 6% higherFollowed another beat and guidance increase.
• Telefónica Brazil revenue exposureApproximately 30% of group revenueMakes changes in Brazilian competition and pricing important to the outlook.

Impact & implications

The report says easing technical pressure could allow strong AI-related earnings and capacity evidence to reassert itself in European semiconductors. It also stresses that stock reactions can remain disconnected from fundamentals while investor exposure and sector rotations dominate trading, requiring close attention to execution, guidance and flows.

Risks

• Rapid de-grossing and fragile positioning could cause another sharp reversal even if AI fundamentals remain intact.
• Supply availability could constrain the scale of any Infineon revenue beat and potential guidance increase.
• SAP faces mixed AI adoption and monetisation, cost pressure, and uncertainty around the sustainability of margin expansion.
• Brazilian competition and pricing pressure could weigh on Telefónica, where Brazil represents about 30% of group revenue.
• Orange faces mixed trends in Spain, while Vodafone's Enterprise-led beat is viewed as opaque and customer metrics remain weak.
• China domestic-DUV developments may continue to pressure ASML sentiment despite the report's view that near-term fundamentals are unchanged.

What to watch

• Whether European semiconductor buying develops into durable re-grossing rather than a short-lived positioning move.
• Further evidence that AI demand and capital spending remain strong, including capacity, pricing and order developments.
• Nokia's ability to sustain AI demand despite supply constraints.
• ASML's 2027-28 EUV capacity trajectory and resulting changes in 2028 EPS expectations.
• Infineon's forthcoming results, supply availability, AI-power revenue outlook and potential November guidance updates.
• SAP's AI monetisation, margin recovery and second-half delivery.
• Telefónica's Brazil competitive conditions and Orange's Spain trends and French-consolidation regulatory progress.