Europe's top AI plays extend slide, Microsoft data centre worries persist

By Lucy Raitano and Samuel Indyk

LONDON (Reuters) - Some of Europe's most popular AI-linked stocks fell for a second day on Tuesday, after an analyst note late last week that flagged a possible slowdown by Microsoft on data centre leasing knocked sentiment ahead of make-or-break results from Nvidia.

Less than a month ago the emergence of China's cheap artificial intelligence DeepSeek model triggered a global selloff in tech shares and a reassessment of how much Western companies are spending on development and key infrastructure such as data centres.

TD Cowen analysts said in a note late on Friday that Microsoft had scrapped leases for sizeable U.S. data centre capacity in the United States.

Europe has no direct equivalent to either Nvidia, whose chips power a lot of existing AI capability, or Microsoft, but shares in companies that are exposed to datacentres endured a second day of selling.

Microsoft has said its AI and cloud capacity investment plans remained on track.

Shares in Germany's Siemens Energy, which have soared over 600% since a low in October 2023, fell 3.5% and French electrical equipment maker Schneider Electric lost 2.5%, having dropped by 4% and 6.9%, respectively on Monday.

"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 said.

Shares in Italy's Prysmian, the world's largest cable maker, fell 2% on Tuesday after ending Monday down 4.5%. Shares in Swiss engineer ABB were down 1%, following a 4.7% drop on Monday, when the company's management held a call with analysts.

"ABB thinks this is to allow Microsoft to 'take stock and see where we are' rather than a major inflection," Citigroup analysts said in a note following the call.

UBS said it viewed the market response as another "DeepSeek moment" in that it presented a buying opportunity, while Barclays said it may take investors some time to figure out if this latest development is specific to Microsoft, or a sign of a broader shift.

Steve Wreford, lead portfolio manager/analyst on the global thematic equity team at Lazard Asset Management and co-manager of around $1.5 billion in assets said AI was still very much a "winner takes all landscape" in terms of big tech spending.

"The latest developments at Microsoft may reflect a more measured approach to data centre buildout," he said.

Tech shares have been volatile this week ahead of Nvidia's quarterly results on Wednesday that investors will scour for evidence that the company's lofty valuation is justified and the outlook for its products remains robust.

(Reporting by Lucy Raitano and Samuel Indyk in London; Editing by Amanda Cooper and Alexandra Hudson)