AI and M&A in European Tech, Media and Telecom

Although Europe trails the U.S. in exposure to AI infrastructure providers, it is making significant strides in AI adoption. Companies are increasingly leveraging AI to address productivity and demographic challenges, particularly in sectors like banks, discretionary retail, food retail, insurance and software.

“European companies with neutral to high pricing power that are adopting AI solutions are showing earnings outperformance relative to MSCI Europe, their respective sectors, and, from a return on equity (ROE) perspective, even to U.S. equivalent adopters,” says Morgan Stanley Chief European Equity Strategist Marina Zavolock. “While we expect limited growth for European equities overall, we expect stronger performance from those that are adopting AI .” 

Despite this momentum, European AI adopters still trade at a 28% discount to their U.S. counterparts based on forward price-to-earnings ratios—highlighting a potential investment opportunity.

Morgan Stanley Research forecasts that revenue from GenAI is likely to reach $1.1 trillion globally by 2028, with Europe accounting for $160 billion to $195 billion of that amount.

The analysis indicates that enterprise software could generate $58 billion in Europe, while the market for consumer-facing applications—such as ecommerce, search, and wearables—are likely to be in a range of $102 billion to $137 billion.

“Although Europe has a lower exposure to AI enablers than in North America, many local companies are set to emerge as key theme leaders,” says Adam Wood, who covers European software companies for Morgan Stanley Research. 

Major European tech companies, financial firms and governments have announced more than $350 billion in investments to establish a strong AI ecosystem and infrastructure, both in the EU and in the U.K., countering the view that Europe has ignored the broader AI opportunity. Capital goods, semiconductors and software are key European enabler sectors.  

“While the first wave of GenAI investment has focused on infrastructure dominated by North America, European players have been instrumental in powering the global data center build-out,” Wood says. “Looking ahead, the real opportunity lies in the software layer, where European firms are emerging as key enablers of AI adoption across industries.”

Data centers, the backbone of artificial intelligence, are undergoing a dramatic expansion. According to Morgan Stanley Research, global data center capacity should grow at an annual rate of 23%, rising from approximately 95 GW in 2025 to 250 GW by 2030.

“AI is beginning to penetrate the mass market,” said Emmet Kelly, Morgan Stanley’s European Telecom Analyst. “Key players in the industry anticipate that data centers will be able to keep up.”

The U.S. is expected to lead this growth, with capacity increasing from 37 GW to 150 GW by 2030. China, the world’s second-largest data center market, is forecast to grow 16% annually, nearly doubling to 42 GW by 2028 from about 22 GW currently. In the Middle East, countries like the UAE and Saudi Arabia could see capacity surge sevenfold.

Europe’s current capacity of 7 GW remains low when compared with the U.S. and China. However, emerging hubs in Northern France, Berlin, Milan and Zurich, along with regulatory progress, could drive 15% annual growth through 2035, reaching 36 GW. 

Risks to this expansion include: limited access to clean energy; potential pullbacks in AI investment by leading technology companies, if financial returns fail to meet their expectations; permitting delays; supply chain constraints; and rising costs.

France’s telecom sector—one of the most competitive in Europe—is once again eyeing consolidation. With four major players and limited room for price increases, recent statements and developments confirm that M&A activity is back on the table.

“All four telecom companies could consider M&A for different reasons,” says Kelly. “Their motives vary from the search for more synergies, the need for scale or simply less competition to boost growth.” 

Telecom mergers typically save between 2% and 13% of costs, based on 14 previous combinations in the industry. Considering the French sector’s cost base, a merger could lead to synergies from €8 billion to €20 billion, according to Morgan Stanley Research’s estimates.

Two previous attempts to combine companies, about 10 years ago, failed as executives cited antitrust risks and the government expressed concerns about employment and higher consumer prices.  

This time, the antitrust environment may be more favorable. European Competition Commissioner Teresa Ribera, in office since Sept. 2024, has signaled plans to modernize competition law, potentially easing the path for deals.

“A successful transaction would depend on many stars aligning almost simultaneously, notably price and asset split, so it would not be without risks,” Kelly says. 

Online classifieds platforms remain a safe haven among European internet and media companies in the evolving AI landscape, as the sector benefits from strong network effects, trusted brands and proprietary data, according to Morgan Stanley Research. 

“AI is more likely to enhance these businesses, rather than replacing them, by improving user experience, increasing operational efficiency and supporting monetization,” says Ed Young, who leads Morgan Stanley’s Research coverage of Media & Internet in Europe.

However, the rise of more advanced “agentic” AI assistants could disrupt how users interact with classifieds portals. Agentic developers could play a greater role in discovery, while portals continue to participate in fulfilment and data management. 

“The exact balance of control remains unclear and will depend on how the direct consumer relationship evolves,” Young says. “If discovery becomes decoupled from individual classified platforms, traffic may shift toward AI gateways, and pricing power may weaken.”