UBS equity strategist Gerry Fowler said investing in European banks could be safer and more profitable than Nasdaq, especially given the high valuations of big tech stocks. Tech investors have been excited to pour money into big tech companies following solid earnings reports and the hype surrounding artificial intelligence. Shares of Nvidia, for example, have risen 156% year-to-date. However, Fowler, head of European equity strategy at UBS, warned that the enthusiasm may not last if expectations around artificial intelligence technology do not materialize quickly enough. While stocks in the Nasdaq Composite need significant growth to deliver returns, European banks can deliver similar returns with less risk, he explained. Take Nvidia, for example: The stock currently trades at 36 times earnings, compared with about 5 times earnings for its peers. The stakes are high, as the chip designer either needs to grow sales quickly to catch up with its valuation, or the stock price needs to fall sharply to stay in line with its peers. “With European banks at six-and-a-half times (P/E), you don’t really need to give you much (revenue) growth to get a 10% return,” Fowler told CNBC’s Squawk Box Europe on Thursday. , and when you add their buybacks and dividends, they’ll give you a 10% return next year.” One of the main reasons for his confidence in European banks is their resilience to changes in interest rates. The strategist said UBS expects rates to rise further and remain “high for a prolonged period”. Typically, higher interest rates boost banks’ profitability. “We don’t think even when rates are cut in 2024, it won’t be particularly dramatic, and it won’t be particularly quick,” Fowler added. iShares STOXX Europe 600 Banks ETF and Lyxor STOXX Europe 600 Banks in Europe. While some regional banks in the U.S. have faced challenges with commercial real estate lending recently, Fowler sees European banks as safer because of the more stringent regulatory environment there than in the U.S. However, higher interest rates increase borrowing costs and depress valuations in the real estate sector, potentially increasing risk for lenders. Citi analysts predicted in April that European real estate stocks would fall by 20%-40% between 2023 and 2024 as the impact of rising interest rates takes hold. In a worst-case scenario, the riskier commercial real estate sector could plunge 50% by next year, Citi said.