Are There Opportunities in Europe’s “Digital Sovereignty”?

In this episode of Motley Fool Hidden Gems Investing, Motley Fool contributors Tyler Crowe, Matt Frankel, and Lou Whiteman discuss:

• Apple’s fight with the E.U. over Siri AI
• What happens to big tech when Europe wants its own tech?
• What’s the CAPE ratio, and why is it flashing warning signals?
• In highly valued markets, should investors look at defensive stocks?
• The best place to park your cash “on the sidelines”

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. When you're ready to invest, check out this top 10 list of stocks to buy.

A full transcript is below.

This podcast was recorded on June 9, 2026.

Tyler Crowe: 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. Today, we're going to hit a couple of listener questions as we like to do here on Tuesdays, and it's been a slow news week, at least from companies issuing press releases. We're going to do two whole segments based dedicated to listener questions. 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. 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 or an exemption, and E.U. is like, no, follow our rules. Basically, it's going back and forth, and it's not pretty.

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 digital sovereignty — 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.

This isn't just Europe either; this is a worldwide thing. China announced earlier that it's deploying a $250 billion fund to build data centers nationwide for its, we'll call it, its home-cooked AI instead of relying on the Anthropics or the OpenAIs of the world. Now, the Chinese digital market has always been a walled garden, with the BYDs and the Alibabas 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, I wouldn't say full-on gates, but screen doors, I guess, if you will, around European markets alter the thesis on big tech companies or AI deployment or anything that you've been seeing recently? What do you say, Matt?

Matt Frankel: It's not surprising that Apple is not thrilled by this. I mean, Apple Intelligence and several of its newer features have been either delayed or limited in the E.U. in recent years. Google, Meta, Amazon are also dealing with all this; it's not just Apple. 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 chipmakers, 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. All the companies I just mentioned — Apple, Google, Meta, Amazon — they all depend on Europe for somewhere 20-30% of their revenue. If we see their sales declined by 10-20%, or their margins declined by 10-20%, which I view as the worst-case scenario by this news, it wouldn't completely change my thesis. 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 E.U. here. I'm not rethinking any of my big tech investments on this news.

Lou Whiteman: 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. Part of what makes Apple Apple is iOS is just everywhere. It's ubiquitous. It feeds into the Apple Store development, and it feeds into the network effect that it's enjoyed. To the extent that this trend towards regionalism, instead of globalism, causes a Balkanization of tech, I think it makes every company, including Apple's products, just less powerful, maybe less profitable over time.

This isn't just a tech story; it's playing out all over the place. Automotive is a real one where it's definitely happening; you just have the U.S. market and the global market going in separate directions. The big picture here is the ‘80s and ‘90s vision of globally dominant companies is getting overhauled by just geopolitics about what's going on. U.S. companies can evolve and survive. I don't think it again; I'm not sure I'm going to change investments right now, but I'm watching this because, make no mistake, the status quo that has been in place over the years was highly favorable to the U.S. tech champions, to U.S. companies. I am doubtful that whatever replaces the status quo will be as favorable to the U.S. brand, the U.S. companies. I do think it could have really hard to predict or hard to quantify right now changes. I do think it could change the thesis for some of these companies over time.

Tyler Crowe: To that point, too, obviously, it changes the thesis and not necessarily good way for the big companies, but if I were to flip the script a little bit here, it does seem like there would be some opportunities. Because if Europe wants to build out the capacity for the things that we're talking about here, chipmakers, AI tools, things like that, there should be an opportunity for the building in the infrastructure and a lot of the, you could call them the champions of this build-out in Europe, similar to what we've had in the United States. Perhaps they haven't quite emerged yet, but I'm just thinking along the lines of it is such a nascent market relative to what we see globally. I saw a quote from ASML, the builder of the lithiography machines that basically etch chips, and they're the sole maker in the world, and he said, 80% of my sales are to Asia, 1% of them are to Europe, so clearly, this is a very small market, and that leaves us an opportunity.

If you were to start looking at the tea leaves, maybe thinking about companies, perhaps, opportunities where Europe is building out this, it doesn't necessarily have to be American companies either, but opportunities where this redundancy or this European digital sovereignty, digital infrastructure, national, regional infrastructure, where do you see some potential opportunities?

Matt Frankel: Yeah, well, I mean, the one thing I would say is that digital sovereignty means that there's going to be a lot of duplicate infrastructure throughout the world. We're seeing this in the U.S. I mentioned the chip foundries are being built here, data centers, other things like that, so there are a few types of winners that I see. There are some companies that produce equipment and software and things like that that is so unique that there's literally no equivalent; Applied Materials comes to mind. You already mentioned ASML is a company that I think is just an opportunity just in itself, no matter what. Data Center infrastructure: companies like Vertiv, ticker symbol VRT, Quanta Services (PWR) that do the electrical work for data centers. They're more obvious beneficiaries: hundreds of billions of dollars in new data centers, networking companies like Cisco, European infrastructure. If the digital sovereignty trend continues, it'll still need switches and routers, no matter what, so I see a lot of opportunities throughout the market, but those are just some that I can think of off the top of my head.

Lou Whiteman: I think there are opportunities. I mean, for some of these the infrastructure companies that are in the U.S., they only have so much capacity, and they may not have that capacity in Europe; they're unlikely to fly all their workers over to do Europe. I do think look at the European champions. Schneider Electric is a great company that is doing a lot of business in the U.S. because there isn't this business in Europe. I think you can see them switch, Lerand, which I think does the electrical cabinets that all these things go in. That is, again, a European champion that could benefit. We're not going to see Comfort Systems get a boost because they need more air conditioners in Europe. That's just not going to go to them. I think all in, selectively, this should end up with more spending, but also less efficiency. The bigger picture thing is to think about where a company sits on the value chain, whether or not it's going to be good or bad, whether they will be less efficient or have more opportunity and make decisions based on that.

Tyler Crowe: Might have to do some real follow-up deep dives on the European, actually, companies that are traded on the European markets here, because this could be an interesting story to follow in the coming months and years. Coming up after the break, we're gonna jump into listener questions.

Hey, everyone, as we get into our questions here, just a quick reminder: if you want your question asked on air, go ahead and email us at podcasts@fool.com. It's podcasts with an "S" @fool.com. We'll try to answer it as best as we can. Our three request is always, keep it Foolish. Keep it short enough. We can read it on air, and we can't give out any personalized advice. Try to ask it in a sense of, like, what would an investor do in this sort of situation.

With those rules in mind, our question to start out today is from Nowina Wikrmhinga. I hope I said that right; I apologize if I got it wrong. Her question is, the current Shiller CAPE ratio in national debt has made me a bit nervous, and I want to know what your thoughts on about adjusting a portfolio’s equaling. This is a sign to start increasing cash or rotate investments into defensive companies. Some of the ones that you mentioned here, we have Waste Management, NextEra Energy, Berkshire Hathaway, and doing this rotation, despite strong earnings in the S&P 500, thanks. Before we get started on this, Matt, I don't know if everyone's necessarily familiar with the Shiller CAPE ratio. Just give us a quick rundown of what that is before you get into the thoughts on valuation related to it.

Matt Frankel: If you're not familiar, CAPE stands for “cyclically adjusted price-to-earnings” ratio. Essentially, it takes the market's collective P/E ratio, which is one of the most common valuation metric used. But instead of using the trailing 12-month earnings, it uses 10 years of inflation-adjusted earnings. The idea here is that you're comparing current valuations against what we would consider normalized earnings across many market environments, not just earnings that result from recent trends, like the AI infrastructure boom, for example. The listener is right: the Shiller CAPE is very high right now. It's about 38; that's more than twice its long-term average, which is 16-17, depending on what time period exactly you're looking at. In the dot-com bubble, it peaked at 44, just for reference.

My short answer is that this is not a reason to be worried all by itself. For most of recent history, meaning my investing lifetime, and I'm in my 40s, the Shiller CAPE has been above its long-term historical averages, and if you had become defensive every time it crossed, say, 25 or 30, you would have missed out on a ton of upward moves. Having said that, I use an elevated CAPE as a sign that I should expect more moderate returns over, say, the next five to 10 years. But on a short-term basis, we've seen time and time again that an elevated ratio doesn't really predict much.

Lou Whiteman: I push back a bit. I think it is a reason to be worried, but I think what Matt’s saying, and I agree with it, it's just not actionable. I really worry about the market today. I think we are more likely than not near a top and probably closer to the end than the beginning, all of those cliches. The thing is, though, the CAPE was at 37 a year ago, and so I had just as much reason to be worried then. In fact, I did think, wow, how long this could go on then? It would have been a mistake for me a year ago to adjust my portfolio due to those worries; in hindsight, and maybe now is the time to take action, or maybe we'll be having the same conversation another six months to a year. I think the listener is correct to be noticing this, and we can talk about maybe how you think about this in terms of what you do with your money. But also, I don't think it's time to throw all my money under a mattress because these things can remain this way for a lot longer than I would think.

Tyler Crowe: Thought we're going to list off as many clichés: end of the line of questioning, ninth inning end of the line, riding off into the sunset, we'll just throw them all out there to make sure that we covered all our bases here. We talked about the valuation thing, but now, talking about the idea of rotating into defensive companies or maybe businesses that aren't necessarily as exposed to a lot of the trends that we're seeing in the S&P 500, which is, let's be honest here, the AI infrastructure build-out, the Mag Seven, and a lot of those companies. To the companies that we're asked here, we got Waste Management, NextEra Energy, Berkshire Hathaway, companies like that. Is that the move that you would do when you see these elevated valuations, or is that just a milquetoast way of doing it? It's like, “Yeah, we're getting into these, they're overvalued, but they're safer.” Is this the rotation you would do, or is there something else that you'd normally do in these situations?

Matt Frankel: Yes. First of all, defensive companies aren't immune to valuation-related concerns. The stocks mentioned in the listener's question, companies like Waste Management and NextEra, they actually trade for somewhat high multiples compared to their own history right now, so they could actually be a little compressed, as well. I'm going to give a more financial planner-type answer to the question. Ask yourself a few questions. No. 1, ask yourself if your asset allocation right now makes sense for your investment goals, your time horizon, and your willingness to withstand an occasional 30% drawdown. If it doesn't, then move a little bit more defensively regardless of what the CAPE ratio or any other market indicator is doing. Second, ask yourself if you're confident in the businesses that you own in terms of their ability to survive a recession. Finally, I would say, if you're investing consistently, regardless of what the market is doing, because averaging into stocks over time, it's a great defensive mechanism against valuation risk, because you're going to end up buying more of your shares at cheaper prices over time, regardless.

Lou Whiteman: My answer for this is, I'm always defensive, and it's just like my philosophy on investing. I'm always trying to find the opportunities that I think are out of favor or at least not fully appreciated by the market. Not to use the term “hidden gems,” so to speak. I don't want to chase momentum. Over the past year, I've been buying a lot more financial services companies; I've been buying industrial companies that just don't have the multiple. It's not because I think that the tech is going to crash; it's just I don't want to chase momentum. I want to go where I see value. I can't time the market, but I can try and avoid getting caught up in the market's current mania. It doesn't insulate me because, as Matt says, when a downturn comes, everybody tends to feel it; it's not like you escape things going down, but I feel like it can help avoid total wipeout. So yes, I am looking at the case; I am looking at where rech is valued, and I am investing elsewhere. It's not really because I think the sky is falling, or that things are going to come down right now. It's because I just don't find a lot of value in things when they are, say, fully loved by the market.

Tyler Crowe: Investing optimistically, but underwriting pessimistically in the sense of, Yeah, of course, I want my things to go up, but I'm going to make my investments based on the idea that they could go down and trying to build as using Seth Klarman's Margin safety built into the valuation that you use, can be pretty effective in at least helping to ease some of those valuation concerns. Coming up next, we'll talk about how cash and the dry powder our investments actually also included in valuation and how we use that first strategy.

It's Tuesday. We're going to do two investor questions here. Our second one comes from Matt Popek, and this is related to basically your cash position. Now, the question is, I know that there's some discussion of money market funds recently and how much cash is available, as he quotes, on the sidelines. Is there any downside to using a money market fund? And he gives the example of Vanguard's money market fund. Basically, most brokerages have their own some money market fund, either Vanguard, Fidelity, you name it. Is there a place to park the vast majority of savings, or in this case, cash for a brokerage?

Lou and you, Matt, specifically, where are you keeping your dry powder for future investments these days? Money markets don't quite like the stock market, at least to Matt here, even if it isn't a brokerage. Before you guys answer, I just want to give a little bit of context to Matt, and hopefully, he’ll better understand this. When you hear the term “money on the sidelines,” either here or I think I hear it all the time on CNBC, I think it's one of their most commonly use terms. That is money actually in money markets funds; it is actually what the Federal Reserve Bank of St. Louis tracks. Now, it might not necessarily reflect all available money to invest in the stock market because maybe some people are using certificates of deposit or longer-dated treasuries, but money market is a decent approximation. According to the Federal Reserve Bank of St. Louis, about $8 trillion worth of money is in money market accounts today, and $2.2 trillion of that is actually in retail investors — you, me, Lou, Matt, all of us — that is in those accounts. After that little long background, guys, do you use money market accounts? Is this the best way to do it? What are some of the other strategies?

Matt Frankel: If I'm being honest, most of the time I'm fully invested or at least pretty close to it. I like to contribute money to my brokerage account pretty much every time I get paid and allocate it where I see the best opportunities, and there always are some; there's always cheap stocks somewhere. But in times where there's either a lack of attractive opportunities or just nothing that's getting me excited, or elevated uncertainty in the market, I do often let my cash accumulate for a little while. Right now, I have 7% of my portfolio in cash; I sold a couple of stocks not that long ago, and that's a lot for me. My cash management strategy isn't that different from money market accounts. My broker happens to also offer a high-yield savings account, and I can easily transfer money between those two. That's where I put any of my uninvested cash. Right now, I get a little more than 3%, and I'm fine with that at times when I want a little bit more financial flexibility to save for opportunities I really want.

Lou Whiteman: First off, Tyler, I'm glad you gave that explanation. This question shows why that statistic that CNBC loves to cite is so imperfect because people do use money market funds for a lot of things, including cash savings that they might not be looking to deploy; some do, though. For me, I consider cash cash and investments investments and never they shall meet. In a way, I guess I am always fully invested because I don't think of my cash position as headed towards the market. I try and keep a significant amount of cash for upcoming expenses, emergency funds. I'm a believer in that nothing in the market you might need in the five years, so I do need to park cash in a lot of places.

For me, it's spread between treasury bills, and I have three online savings accounts with three different banks. I don't use money markets simply because treasuries just pay better, and there's no expenses. The Vanguard fund that Matt mentioned, it's currently yielding 3.5%. I can get a little over 3.7% in a six-month treasury, and I don't have any expense ratio on that. So that's just a personal preference. I do think there's nothing wrong with money market funds. They do tend to pay better than most online savings accounts; you don't have all of the protections, but you have a lot of protections. Just for me, treasuries are the go-to choice because you do get maybe 20 basis points better yield.

Tyler Crowe: When it comes to effort, Lou’s cash management, certainly much more than mine because I'm definitely the lazy investor who says, Yeah, park it in the money market. That tends to be my strategy, at least, although I have been accused at times from being a little bit of a lazy investor and doing things like. To Matt's point, Matt, the listener, the question. Yes, money markets, technically, they're not FDIC insured, but they tend to be invested in things like very short-term treasuries. At least that's what your broker does, and then they transfer a decent amount of that yield to you. They're getting a little bit of the spread by investing your cash, and then they pass on a significantly, I wouldn't say all of it, but enough of it that they're giving it back to you, and so those rates for money markets will tend to fluctuate over time based on Federal Reserve interest rates. I think we can all really remember in the 2010s, money market rates were maybe 0.05% or something like that. It was definitely not the attractive option that it has been in the past couple of years, where it has been at 3% range. Do keep that in mind. If we go back to the 2010s again, everyone's going to be looking at their cash and be like, This is doing absolutely nothing for me. Money markets can be effective when they're doing in a higher interest rate environment, but they can also cut both ways.

As always, people on the program may have interest in the stock they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley Fool editorial standards, and it's not approved by advertisers. Advertisements are sponsored content provided for informational purposes only. To see our Fool advertising disclosure, please check out our show notes. Thanks to our producer Dan Boyd and the rest of the Motley Fool team. For Lou and Matt and myself, thanks for listening, and we'll chat again soon.

Lou Whiteman has positions in ASML and Berkshire Hathaway. Matt Frankel, CFP® has positions in Amazon and Berkshire Hathaway. Tyler Crowe has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends ASML, Alphabet, Amazon, Apple, Applied Materials, Berkshire Hathaway, Cisco Systems, Comfort Systems USA, Meta Platforms, NextEra Energy, PWR Holdings, Schneider Electric, and Vertiv. The Motley Fool recommends WM. The Motley Fool has a disclosure policy.