Investors looking for exposure to the data center equipment market may want to turn their attention to Europe. According to a recent report from Morgan Stanley, European capital-goods names tied to data center builds, such as Schneider, Legrand, and ABB, trade at a 24% EV/EBIT discount to US peers like Vertiv and Eaton. This significant valuation difference creates an opportunity for investors to potentially benefit from a mean-reversion event in the European group.

The report highlights that while the US data center equipment market is currently experiencing strong growth, the European market has been slower to develop. However, as data center demand continues to increase globally, Europe is expected to see increased investment and growth in the sector. This could lead to a narrowing of the valuation gap between European and US peers, making European data center equipment companies more attractive to investors.

Of the three European companies mentioned in the report, Schneider is the preferred pick for investors. The company has a strong market position in Europe and a growing presence in the US, as well as a diversified product portfolio and a history of delivering consistent profitability. Additionally, Schneider’s stock has underperformed relative to its peers over the past year, creating an opportunity for investors to buy in at a potentially attractive valuation.

Overall, while the European data center equipment market may be less well-known than its US counterpart, the current valuation gap presents a compelling opportunity for investors looking to gain exposure to this growing sector. With the potential for mean-reversion and the presence of high-quality companies like Schneider, now may be an ideal time to consider investing in European data center equipment.