JPM cites uncertain AI growth impact on European Software & IT Services
04/12/2025 07:28
** J.P. Morgan sees modest upside to European Software & IT Services from compounded earnings growth, but notes AI uncertainty still clouds outlook
** "2025 was challenging for the Software & IT Services sectors as the AI disruption narrative engulfed the group," says the broker
** It adds the sector has underperformed European equities by over 20%
** The broker reinitiates French IT services firm Capgemini CAPP.PA at "neutral" with a 155 euro PT, citing "better fundamental growth trends which is tempting given de-rated valuations"
** It notes that while growth trends are improving, investor skepticism over AI's effect on the service business model may limit a material re-rating of the stock
** "Further, we want to see signs that margins were coming through as well not just growth," says JPM
** The broker prefers SAP SAPG.DE and Temenos TEMN.S("overweight"), saying software companies with significant complexity in their exposure are most insulated from AI
** It adds Computacenter's CCC.L ("overweight") exposure to GenAI infrastructure CAPEX, particularly among US hyperscalers shows a compelling set-up
** J.P Morgan upgrades IT reseller Softcat SCTS.L to "overweight" from "neutral", expecting an inflection in earnings and free cash flow as one-off investment effects fade
(Reporting by Dimitri Rhodes)
((Dimitri.Rhodes@thomsonreuters.com;))