Europe's AI Divide: Where to Invest in the Productivity Play

The European Union faces a stark productivity crisis. According to Accenture's 2025 analysis, the average European worker now produces only 76% of what their U.S. counterpart generates—a gap that has widened over three decades due to underinvestment in technology. Yet within this challenge lies a transformative opportunity: scaling AI adoption across underserved sectors and small- and medium-sized enterprises (SMEs) to unlock €200 billion in annual business revenue gains.

The continent's AI productivity divide is both structural and sectoral. While industries like automotive and defense lead in AI integration, sectors such as utilities, telecom, and industrial manufacturing—collectively representing over a quarter of Europe's GDP—are lagging. Meanwhile, SMEs, which account for 99% of EU businesses, are adopting AI at just half the rate of large firms. This imbalance creates a clear investment thesis: companies and sectors positioned to bridge these gaps stand to benefit disproportionately from policy tailwinds, infrastructure investments, and the urgency of European firms to close their productivity deficit.

Key Sectors to Watch: Laggards with the Most to Gain

1. Utilities and Energy:
   The EU's industrial sector, including energy and utilities, is ripe for AI-driven efficiency gains. Companies like E.ON (EOAN.GR) are already leveraging AI for predictive maintenance of grids and optimizing renewable energy distribution. However, many firms in this space remain undervalued due to legacy systems and underinvestment.

2. Telecom:
   Telecom giants such as Orange (OR.FR) and Deutsche Telekom (DTE.DE) are racing to deploy AI in network management and customer service automation. Yet these stocks remain undervalued compared to their U.S. peers, offering a compelling entry point.

3. Industrial Manufacturing:
   Siemens (SIEGY) and KION (KION.GR)—already early adopters of AI in robotics and logistics—are leaders in this space. However, smaller industrial firms lag, creating opportunities for AI-as-a-service platforms.

The SME Opportunity: Tools for the Underserved

The EU's SME sector is its economic backbone, yet 69% of small businesses lack the resources to scale AI. This opens doors for companies that provide affordable, scalable AI solutions tailored to SME needs.

• SAP (SAP): A leader in cloud-based enterprise software, SAP's AI-driven tools (e.g., predictive analytics for supply chains) are critical for SMEs. Its stock trades at a discount to peers like Microsoft, despite strong cloud revenue growth.
  

• OVHcloud (OVH): France's top cloud provider is a beneficiary of the EU's push for digital sovereignty. Its data centers, designed to meet stringent local data residency rules, are vital for SMEs seeking AI without relying on U.S. or Chinese infrastructure.

Policy Tailwinds: The EU's Playbook for AI Adoption

The EU's AI Act and EuroStack initiative are designed to reduce regulatory friction and foster digital sovereignty. Key elements include:
- Streamlined compliance for non-high-risk AI systems (e.g., SME tools like chatbots).
- Public funding to build sovereign AI infrastructure, including cloud and semiconductor hubs.
- Workforce training programs to address the 36% of EU workers lacking AI literacy.

These policies are already accelerating adoption. The European AI Office, launched in 2024, is prioritizing partnerships with SMEs, while the AI Pact offers a voluntary framework to ease compliance.

Risks and Considerations

• Data Fragmentation: Siloed corporate data remains a barrier. Companies like Celonis (CLO), which specialize in process mining, could capitalize here.
• Talent Shortages: The EU's reliance on imported tech talent poses risks. Firms like Pluralsight (PS), offering AI training, may see demand surge.
• Geopolitical Risks: U.S.-EU trade tensions could delay AI collaboration, though the EU's focus on sovereignty mitigates this.

Investment Playbook: Build a Diversified Portfolio

1. Sector Leaders with Undervalued Stocks:
2. E.ON and Siemens for industrial/energy AI.

3. OVHcloud for sovereign cloud infrastructure.

4. SME-Targeted Platforms:

5. SAP for cloud-based AI tools.

6. UiPath (PATH) for automation (though U.S.-listed, it serves European SMEs).

7. Policy Beneficiaries:

8. NVIDIA (NVDA) for its partnership with Accenture's AI Refinery platform (via cross-border exposure).

Conclusion: Time to Act—But with Caution

The EU's AI divide is a call to action for investors. Companies in utilities, telecom, and industrial sectors—as well as those enabling SMEs—offer asymmetric upside. However, patience is critical. The path to productivity gains will take years, and execution risks remain.

Final Advice:
- Overweight utilities and industrial stocks with clear AI roadmaps.
- Underweight pure-play U.S. tech giants unless they have EU-specific AI partnerships.
- Hedge with sovereign infrastructure plays like OVHcloud.

The productivity gap is a problem Europe can't afford to ignore—and investors who back the right companies now will profit as the continent catches up.