We recently compiled a list of the 15 Best European AI Stocks According to Morgan Stanley. In this article, we are going to take a look at where Rio Tinto Group (NYSE:RIO) stands against the other European AI stocks approved by Morgan Stanley.

There are several ways that investors are approaching the artificial intelligence (AI) boom that has been sweeping global markets since the end of 2022. The most obvious bets have been placed in sectors like semiconductors, software, and biotechnology, at least that is what investors in the United States have been up to. However, the habits of their European counterparts seem a tad different. Across the pond, stock pickers have been making bull calls on more established names to ride the AI wave, namely the utilities, commodities, and professional data providers, among others. Economic experts are describing this as the next phase of investments in the AI universe.

For example, Bernie Ahkong, an analyst at UBS, recently noted that the first phase of AI was interest towards chipmakers (read more about this by accessing 33 Most Important AI Companies You Should Pay Attention To). In the second phase, investors moved towards the industrial companies (read more about this by accessing 20 Industrial Stocks Already Riding the AI Wave) which actually supply the components to the data centers. The present tilt towards utility and power firms is quite possibly the third phase of this AI focus. Analysts at investment bank Morgan Stanley echo these sentiments. In a recent investor note to clients, released last week, these expert stock pickers underlined that even though the chaos around prominent AI firms has somewhat subsided, an AI rumbling in Europe is just about to begin. They attribute it to historical similarities to the mid-1990s, just before the internet craze.

According to Morgan Stanley analysts, European semi stocks are experiencing a tactical correction and should make new highs in the coming months. A basket of these equities, handpicked by these experts, and nicknamed AI winners, has returned close to 45% on average since January 2023, the beginning of the AI revolution. These firms, some of which are discussed in detail below, have outperformed the 14% jump recorded by the MSCI Europe benchmark, per the research. One indication of this is the demand for data centers. Kevin Restivo of CBRE recently highlighted that demand for data center space in Europe is set to outstrip delivery of new stock for the third straight year and AI demand will exacerbate the issue.

Our Methodology

For this article, we selected companies based in Europe who have been benefiting from the AI boom. An important investor note by investment bank Morgan Stanley on European AI stocks formed the basis for this list. These stocks are also popular among hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Aerial view of an open pit mine, with workers extracting minerals.

Rio Tinto Group (NYSE:RIO)

Number of Hedge Fund Holders: 37

Rio Tinto Group (NYSE:RIO) engages in exploring, mining, and processing mineral resources worldwide. It is headquartered in the United Kingdom. Investors who have studied AI in great detail understand that there are some long-term AI plays in Europe other than software and chip firms. One of these long-term bets is linked to the rise in demand for copper as large firms commit billions towards the development of AI data centers. Copper, one of the premier mining operations of Rio Tinto, is one such commodity. It is used extensively in AI data centers. Even though leading AI chips are made of silicon, copper has a key role, interconnecting the integrated circuitry within these chips.

AI-linked demand has led to a shortage in copper supplies, sending prices above $11,000 a metric ton back in May this year. Rio Tinto Group (NYSE:RIO) is one of the biggest beneficiaries from this AI boom. Half-year earnings released by the firm in July reveal that higher copper production and prices have helped to offset a slightly lower production and prices from the dominant iron ore business.

Overall RIO ranks 2nd on our list of the best European AI stocks to buy according to Morgan Stanley. While we acknowledge the potential of RIO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than RIO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.