JPMorgan says Europe has its own AI play
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European defense could be an alternative tech play as AI stocks in the U.S. come under pressure, J.P. Morgan Private Bank says in its 2026 outlook.
Why it matters: Defense budgets are technology budgets now, particularly in Europe as nations there work to shore up their militaries and infrastructure in the face of the Russian threat.
What they're saying: The market isn't pricing European defense "as a secular story like it is AI, and we think it's on the same level," Jacob Manoukian, U.S. head of investment strategy at J.P. Morgan Private Bank, tells Axios.
- Defense spending in Europe could double from current levels, he says. European countries are shoring up power supplies amid the AI boom.
- That could fuel investments across electrification and industrial firms, as well as across the traditional defense sector, according to the outlook.
- The European defense sector has rallied over 20% this year as the "sell America trade" ballooned, but is in "year three" of a "decade trend."
Zoom in: Higher wholesale prices and reliance on energy imports make electricity prices higher in Europe compared with the U.S.
- That problem could be exacerbated by AI, which requires lots of energy.
- Europe also lost 30% to 40% of its electricity input from Russian pipeline gas following the invasion of Ukraine, according to Manoukian.
- Europe, he says, will have to spend more to build LNG import terminals to ensure lower energy costs in a fragmented world centered on AI.
Between the lines: The bet on Europe is also about diversification.
- "The investment opportunity in European names is differentiated relative to the story in the U.S.," says Stephen Parker, co-head of global investment strategy at J.P. Morgan Private Bank.
Zoom out: Investing internationally becomes "that much more important" as the world's superpowers step back from globalization, Manoukian says.
