Opportunities in Europe’s “Digital Sovereignty”?
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What is Europe's digital sovereignty and why does it matter?
We're talking opportunities in Europe's digital sovereignty on Motley Fool Hidden Gems Investing. Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe. And today I'm joined by longtime Fool contributors, Lou Whiteman and Matt Frankel. So today we're going to hit a couple of listener questions, as we like to do here on Tuesdays. And it's been a kind of a slow news week, at least from companies issuing press releases. So we're going to do two whole segments dedicated to listener questions.
How is Apple's conflict with the EU impacting digital privacy?
We're going to talk about valuation. We're going to talk about how we use our cash and our dry powder, our investing strategies. But we wanted to start today with a couple of news articles that I'm going to string together into a theme that we're going to call Europe's digital sovereignty. And we'll start off with a big story that came out today related to Apple, who's in a bit of a, to use the British parlance, a row with the European Union about its digital privacy rules and its Siri AI assistance. Basically, Apple's not looking to get an extension or a waiver, an exemption, and EU's like, no, follow our rules. So basically it's going back and forth and it's not pretty.
What opportunities exist for companies in Europe's digital infrastructure?
But the bigger theme here, because this is one story of many that we've seen recently around Europe, and it's this theme of like digital sovereignty, digital, I want to say nationalism, that isn't quite the right word, but basically Europe is looking like they want to make a more concerted effort to own things, to be a bigger player in a lot of the discussions that we have around things like AI, semiconductor manufacturing, payment rails, social media, and they're looking to build their own products. And this isn't just Europe either. This is kind of a worldwide thing. China announced earlier that it's deploying a $250 billion fund to build data centers nationwide for its kind of, we'll call it its home-cooked AI inside of relying on the anthropics or the open AIs of the world.
Now, the Chinese digital market has always been kind of a walled garden with the Baidus and the Alababas not necessarily playing as well with U.S. companies. So that's not much of a game changer when we talk about AI and digital development here. But does the emergence of these rules and these European initiatives to put kind of, I wouldn't say full on gates, but screen doors, I guess you will, around European markets change? kind of alter the thesis on big tech companies or AI deployment or anything that you've been seeing recently? What do you say, Matt?
It's not surprising that Apple's not thrilled by this. I mean, Apple intelligence and several of its newer features have been either delayed or limited in the EU in recent years. Google, Meta, Amazon are also dealing with all this. It's not just Apple.
What is the Shiller CAPE ratio and what does it indicate?
It's also not surprising, on the other hand, that Europe wants more digital sovereignty. We're doing the same thing. For example, when it comes to the chip makers, the investments we're making in Intel's foundry and things like that. Nations are realizing that depending on foreign suppliers for critical infrastructure and technology needs, it's a national security concern. But as to the question of does this change the thesis, my short answer is yes, but not as much as you might think. So all the companies I just mentioned, Apple, Google, Meta, Amazon, they all depend on Europe for somewhere between 20 and 30% of their revenue. And if we see their sales decline by 10 to 20% or their margins decline by 10 to 20%, which I view as kind of the worst case scenario by this news,
It wouldn't completely change my thesis.
Should investors consider defensive stocks in a high CAPE environment?
Smart investors, like you said, already assume that China is essentially a closed market when it comes to evaluating these stocks. But I don't think the same thing is needed with the EU here. I'm not rethinking any of my big tech investments on this news.
I don't know if you have to rethink your investments, but I'm not sure that just looking at today's profit and loss statement and extrapolating off of that is really the way to look at this, because I think there could be less foreseen, if not consequences.
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Chapters
8 chapters
1
What is Europe's digital sovereignty and why does it matter?
0:02–0:30
2
How is Apple's conflict with the EU impacting digital privacy?
0:30–1:10
3
What opportunities exist for companies in Europe's digital infrastructure?
1:10–2:46
4
What is the Shiller CAPE ratio and what does it indicate?
2:46–3:32
5
Should investors consider defensive stocks in a high CAPE environment?
3:32–5:16
6
What strategies should investors use for cash positions during market uncertainty?
5:16–7:57
7
How can digital sovereignty lead to infrastructure redundancy?
7:57–12:14
8
What are the best places to park cash for future investments?
12:14–22:21