As AI trade tires, BCA calls for European stocks to beat Wall Street

BCA Research advises investors to transition their holdings from U.S. equities to European stocks due to waning confidence in the artificial intelligence investment surge and the potential decrease in energy prices, which could see Europe outperform Wall Street. The firm's chief strategist, Jeremie Peloso, points out growing doubts surrounding the sustainability of AI expenditures and infrastructure investments, causing increasing unease among market participants.

Although BCA does not anticipate an immediate crash in the AI boom, Peloso suggests that the looming regulatory, permitting, and return-generation challenges warrant a more cautious stance towards U.S. equities.

European markets, despite facing challenges such as surging energy costs and competition from the U.S. tech sector, have managed to maintain relative stability compared to their American counterparts. Falling energy costs could provide a significant boost to European households and businesses by alleviating pressure on purchasing power and profit margins.

BCA's geopolitical analysts estimate a 30% chance of renewed conflict in Iran, but the broader outlook predicts a gradual normalization of energy prices by mid-2027. This reduction in energy costs could also temper inflationary pressures within the eurozone, reducing the likelihood of further interest rate hikes by the European Central Bank.

BCA highlights the valuation advantage of European defensive sectors, which trade at considerable discounts to their U.S. counterparts, suggesting that investors rotate toward these assets as they reallocate their exposure towards Europe. However, the research firm cautions against interpreting its preference for European equities as an outright bullish forecast for the stock market.

Instead, BCA maintains an overall underweight position in equities relative to government bonds, citing a bearish outlook for the eurozone economy in 2027. Ultimately, BCA recommends investors shift their focus from U.S. equities to European stocks, particularly defensive sectors, in the belief that Europe may outperform Wall Street even if both markets decline.