Technology and telecommunications companies in Europe may be poised for growth as companies turn to AI for competitive advantages, while policymakers encourage M&A and investments in innovation to establish Europe’s position against tech and telecom giants in the U.S. and Asia.
The European Commission’s September 2024 report, “The Future of European Competitiveness,”1 describes Europe’s lagging competitiveness in digital technologies as a threat to future growth. It encourages key actions, including the acceleration of AI integration into European industry, consolidation among telecoms operators, and decarbonization through clean tech technologies. As these developments take hold, investors may look for opportunities in European tech and telecom. In particular, they should monitor key trends in AI applications for industrials and healthcare; opportunities for European semiconductor companies; and dealmaking in telecommunications.
1. Increased Digitalization in Industrials and Healthcare
Interest in automating administrative tasks, supply chain optimization and sustainability reporting within industrials and healthcare could fuel growth in these sectors, as well as profitability for enterprise software providers in these verticals. “In industrials, the demand for software is there, and customers tend not to switch systems once they are installed,” says Bjoern Crombach, a Morgan Stanley banker specializing in industrial software. “Vendors in the space generally achieve very strong profitability once they reach scale.”
Healthcare companies are seeking to lessen administrative burdens and to connect patient data across care settings, such as general practitioners, hospitals and outpatient locations. “The need to share data throughout the continuum of care is creating sustained demand for healthcare software,” says Marie-Gabrielle Bui, a Morgan Stanley banker specializing in healthcare technology and semiconductors. Vendors are also more systematically focused on preventative healthcare applications, which could help payers and patients save money, compared to curative or reactive care, Bui says.
2. European Semiconductors’ Competitiveness
According to the European Commission’s report, the AI revolution could help Europe close gaps in growth and productivity and restore its manufacturing potential. Initiatives such as the European Chips Act2 aim to double Europe’s global market share of semiconductors to 20% by 2030, to help bolster domestic production capacity and strengthen innovation in the space.
Europe is currently dependent on non-EU countries for chips design, packaging, assembly and hardware for the most advanced processors. However, the European Commission’s report cites opportunity in coordinating EU efforts around 3D advanced packaging, advanced materials and finishing processes for chips. European companies could take market share in advanced packaging, which combines multiple chips for improved performance and energy efficiency, as several leaders in advanced packaging are European companies, according to Bui.
3. Telecoms Boosted by AI and M&A
In the telecom sector, Europe is less dependent on foreign providers, and top EU telecoms operators may be well positioned for growth as mobile phone prices rise faster than inflation and capital-expenditure investment levels fall, according to Kamal Chebaklo, a Morgan Stanley banker specializing in telecommunications companies. In addition, telecoms operators are using AI for cost cutting and customer service improvement, while investments in AI and data centers are driving up demand for fiber infrastructure, further boosting telecom ecosystems, Chebaklo says.
At the same time, telecoms operators are increasingly separating and sharing network elements to improve return on invested capital. “European telecoms will continue a disaggregation of the value chain,” Chebaklo says, a theme that was prominent at the Morgan Stanley Technology, Media and Telecommunications Conference in Barcelona in November 2024. “We may continue to see a separation of radio access network and tower assets, as well as fixed-line networks.”
