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Artificial intelligence (AI) has been a major reason behind the stellar success stories of several tech giants over the past year. Despite recent volatility in tech stocks, the massive investments pouring into AI underscore the unwavering optimism about its potential. As companies continue to commit billions to harness AI’s transformative power, the technology's long-term prospects look increasingly bright and promising.
In fact, in a recent note, BofA Securities analysts forecast that generative AI could transform corporate efficiency, with widespread adoption anticipated by 2025. As AI pilots transition to production for “44% of S&P companies that mentioned AI” during fiscal 2024 Q2 earnings, this shift could enhance operating margins by 200 basis points over the next five years, potentially yielding a staggering $55 billion in annual cost savings.
That said, BofA Securities identified several global stocks poised to benefit from AI advancements, including ASML Holding N.V. (ASML), the world's leading provider of semiconductor manufacturing equipment. However, with ASML likely on many investors’ AI watchlists already, three other noteworthy buy-rated European stocks - SAP SE (SAP), RELX PLC (RELX), and Orange S.A. (ORAN) - also earned their spot on the list. So, here’s a closer look at these three names.
European Stock #1: SAP SE
Germany-based SAP SE (SAP) is a global leader in enterprise software and services. Boasting a market cap of around $243.3 billion, the company provides a broad range of solutions, including SAP S/4HANA for comprehensive business management, SAP SuccessFactors for HR and talent management, and various spend management tools. Serving 87% of global commerce, SAP’s dominance is evident across finance, manufacturing, procurement, human capital management, and more.
Shares of this enterprise software giant have rallied 53.8% over the past 52 weeks and 34.8% on a YTD basis, easily overshadowing the broader S&P 500 Index’s ($SPX) respective gains of 19.6% and 12% during these periods.
SAP’s annual dividend of $2.39 per share translates to a 1.16% dividend yield. In addition to dividend payments, the company rewards its shareholders through buybacks. In May 2023, SAP launched a €5 billion ($5.5 billion) share repurchase program, set to continue until Dec 31, 2025. By June 30, 2024, SAP had already invested approximately €1.9 billion ($2.1 billion) in the buyback, making significant strides in returning value to shareholders.
Following the company’s Q2 earnings results on July 22, which blew past Wall Street’s top and bottom-line forecasts, shares of SAP jumped more than 7% in the subsequent trading session. The company’s total revenue of €8.3 billion ($9.1 billion) soared almost 9.7% year over year, fueled by a solid 25% annual growth in cloud revenue.
SAP's cloud growth momentum remained robust, driven by Business AI, which facilitated numerous deals. Meanwhile, non-IFRS EPS stood at €1.10, demonstrating a 59% annual improvement from the year-ago quarter. Plus, during the quarter, free cash flow skyrocketed by 114% to a staggering €1.3 billion ($1.4 billion), primarily due to a surge in profitability and smart working capital management.
For fiscal 2024, management projects cloud revenue to range between €17 billion ($18.6 billion) and €17.3 billion ($18.9 billion). Additionally, non-IFRS operating profit is forecasted to be between €7.6 billion ($8.3 billion) and €7.9 billion ($8.6 billion), while free cash flow is anticipated to be around €3.5 billion ($3.8 billion).
Analysts tracking SAP project the company’s profit to dip 20.4% year over year in fiscal 2024 before soaring a notable 33.3% annually to $6.33 per share in fiscal 2025.
SAP stock has a consensus “Strong Buy” rating overall. Of the 16 analysts covering the stock, 13 advise a “Strong Buy,” one suggests a “Moderate Buy,” and the remaining two recommend a “Hold.”
The average analyst price target of $225.30 indicates a potential upside of 8% from the current price levels. The Street-high price target of $248 suggests that SAP stock could rally as much as 18.9%.
European Stock #2: RELX PLC
Valued at $83.4 billion by market cap, London-based RELX PLC (RELX) stands as a premier global provider of information-based analytics and decision tools. Serving clients in over 180 countries, RELX excels across four pivotal segments: Risk; Scientific, Technical & Medical; Legal; and Exhibitions, driving insight and innovation worldwide.
Shares of RELX have gained 36.8% over the past 52 weeks and 13.6% on a YTD basis, soaring beyond the SPX’s returns during both these time frames.
RELX’s annualized dividend of $0.77 per share offers a solid dividend yield of 1.72%. Apart from its attractive dividend yield, the company has made impressive strides with its £1 billion ($1.3 billion) share buyback program, completing £700 million ($889.8 million) in the first half of this year and an additional £50 million ($63.6 million) since July1.
With £250 million ($317.8 million) still to be executed by year-end, the company is on track to fully deploy its ambitious buyback plan, demonstrating its commitment to enhancing shareholder value.
Shares of RELX surged 2.2% on July 25 after the company announced its results for the first half of fiscal 2024. For the six-month period ended June 30, revenue climbed to £4.6 billion ($5.8 billion), up 3.2% from the same period last year, driven by strong demand for electronics, which accounted for almost 84% of the company’s total revenue.
Adjusted operating profit rose 10% annually to £1.6 billion ($2 billion), boosting the operating margin to 34.1% in the first half. In addition, adjusted EPS for the period stood at £0.595, showing a 5.9% annual improvement. While discussing the results, CEO Erik Engstrom emphasized that the company’s success stems from its ability to leverage deep customer insights to integrate leading content, data sets, and advanced technologies such as AI.
Looking forward to fiscal 2024, management anticipates another year of robust underlying growth in revenue and adjusted operating profit. Additionally, the company expects significant growth in adjusted earnings per share on a constant currency basis.
Analysts tracking RELX forecast the company’s profit to climb 27.6% year over year to $1.57 per share in fiscal 2024 and rise another 10.8% annually to $1.74 per share in fiscal 2025.
Overall, RELX stock has a consensus “Moderate Buy” rating. Among the six analysts offering recommendations, three advise a “Strong Buy,” and the remaining three recommend a “Hold.”
The average analyst price target of $52.80 indicates a potential upside of 17% from the current price levels.
European Stock #3: Orange S.A.
With a market cap of roughly $29.5 billion, France-based Orange S.A. (ORAN) is a global telecommunications powerhouse offering a comprehensive range of services, including mobile and fixed telephony, data transmission, and value-added services. Plus, the company also provides cloud computing, unified communications, and security services, alongside mobile devices and accessories services.
Shares of this telecommunication company have gained marginally over the past 52 weeks but have pulled back 2.5% on a YTD basis.
The telecommunication company’s annualized dividend of $0.78 per share translates to an impressive 7.01% dividend yield.
Orange Group announced its fiscal 2024 Q2 and first-half earnings results on July 23. Its revenue for the quarter grew marginally year-over-year to approximately €10 billion ($10.9 billion). This growth was fueled by a 2.4% annual rise in retail services. The Africa & Middle East region led the way with a 10.3% annual revenue increase, driven by strong performance in voice and significant growth across mobile data, fixed broadband, Orange Money, and B2B sectors.
In Q2, the company’s EBITDAaL rose by 2.6% annually to €3.1 billion ($3.4 billion) and hit €5.5 billion ($6 billion) in the first half of fiscal 2024, aligning with its growth target. EPS for the six-month period stood at €0.28, while free cash flow from telecom activities, excluding Spain, surged by over 21% year-on-year to roughly €1.3 billion ($1.4 billion).
For fiscal 2024, management reaffirmed its financial targets with a commitment to achieving low single-digit EBITDAaL growth, maintaining disciplined capital expenditures, and generating at least €3.3 billion ($3.6 billion) in organic cash flow from telecom activities. Plus, management also aims to keep the company’s net debt-to-EBITDAaL ratio steady at around 2x, ensuring solid financial health and strategic focus for the medium term.
Analysts tracking Orange Group forecast the company’s profit to climb 17.4% year over year to $1.08 per share in fiscal 2024 and increase another 20.4% annually to $1.30 per share in fiscal 2025.
Wall Street’s view on ORAN stock is bullish, with a unanimous "Strong Buy" rating among the six analysts in coverage.
The average analyst price target of $13.20 indicates a potential upside of 18.4% from the current price levels. The Street-high price target of $13.90 suggests that ORAN stock could rally as much as 24.7% from here.
On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
