LEUVEN, Belgium -- Beer has been central to this Flemish city's identity for more than 650 years. But it wasn't until the 18th century that the distinctive canals were developed to give local brewer Artois and others a way of shipping their kegs to the rest of Belgium.

More than 250 years later, pubs and taverns still line the cobblestone streets, and imposing Stella Artois chimneys and tall cylindrical grain silos pepper the skyline. This is still a beer town, but in the age of smartphones and social media, the golden nectar isn't the thread that once wove together daily life.

As consumers in the U.S. and Europe cut back on booze, beer sales have slumped, making brewer stocks an investment to avoid for much of this decade. Now, the beverage of choice for frat boys and suburban dads is entering a new era of lager as brewers replace alcohol with electrolytes, protein, and more in a bid to appeal to health-conscious consumers.

Stella's parent company, Anheuser-Busch InBev, is working in its innovation lab here to restart growth, with new versions of nonalcoholic beer. Hopes for new growth -- buttressed by strong cash flow from its 22 billion-dollar brands around the world -- make AB InBev stock an intriguing bet for investors thirsting for a bargain.

Visit a struggling dive bar and it should be clear from the empty stools that alcohol demand is falling. The average American household spends just 0.8% of its total budget on alcohol, according to data from the Bureau of Labor Statistics -- the lowest rate in almost 40 years.

A prime reason for the decline is the postpandemic flare-up in inflation, which squeezed shoppers' wallets and hit the top line for brewers and other consumer packaged-goods companies.

"There's been less money in people's pockets, more inflation, and a disruption of consumer confidence," AB InBev CEO Michel Doukeris told Barron's at a hotel in London. He was in the United Kingdom capital to attend the Laver Cup tennis tournament, sponsored by Stella. The Brazilian, who took over as CEO in July 2021 and has spent three decades at the company, adds: "Beer had some tough years."

Weight-loss drugs have also reduced consumers' thirst for alcohol, and the legalization of cannabis in parts of the U.S. has given drinkers an alternative vice. Unit volumes for AB InBev fell 1.7% in 2023, 1.4% in 2024, and another 2.3% in 2025, with a self-inflicted branding disaster contributing to the misery. Transgender influencer Dylan Mulvaney's social-media collaboration with Bud Light in April 2023 sparked a conservative backlash, and what had once been AB InBev's flagship U.S. beer saw its sales tumble.

It was also a tough period for other brewers. Volumes for Heineken tumbled 4.7% in 2023, rebounded 1.6% in 2024, then fell 1.2% last year. Volumes for Carlsberg were roughly flat in 2023 and 2024 before dropping 2% in 2025, excluding the acquisition of British soft drink maker Britvic.

The slump in sales had a knock-on effect on the three brewers' stocks. AB InBev's U.S. shares tumbled 32% from May 2021 through December 2024. Heineken fell 31%, and Carlsberg dropped 37% over the same period.

Fermenting a Comeback

The selloff has forced beermakers to innovate their way to growth. AB InBev is tweaking its existing products to make them appeal more to those looking to drink less. That process has started here in Leuven, the site of one of Europe's biggest breweries and the company's global innovation hub.

The smell of yeast pervades almost every part of the Stella factory, a maze of whirring tubes and fermentation chimneys that billow out steam as part of the brewing process. The plant has the capacity to pump out almost 1.5 billion pints a year, and runs 24/7 with the exception of Christmas and New Year's Day, as well as three maintenance days.

AB InBev traces its history back to 1240, when Leffe beer was first brewed at an abbey in Belgium. The company's Belgian arm merged with Brazil's AmBev in 2004, then combined with St. Louis-based Budweiser brewer Anheuser-Busch four years later.

Factories like this are key to helping AB InBev and its rivals adapt to the modern day by getting better at zero-alcohol brewing, a weapon to broaden their appeal to people who want to scale back on alcohol -- or not touch a drop at all. One of the newer contraptions here is a dealcoholization machine, a large mass of metal pipes that heats up beer in a vacuum to boil off the alcohol without losing the trademark mix of sweet and bitter that makes lager taste good.

Think of this as beer's Diet Coke moment, as brewers finally crack the formula that makes nonalcoholic beers taste almost as good as the fermented real thing.

In the past, AB InBev made nonalcoholic beers by brewing them for a shorter time so less alcohol was produced. CEO Doukeris likens that to serving undercooked meat without any seasoning, which he says is why nonalcoholic beers used to taste so bad. That contributed to sluggish growth in the sector. AB InBev said in 2015 that it wanted low- or no-alcohol beers to make up 20% of its beer sales within a decade. As of last year, the figure stood at just 6%.

Several innovations could help drive sales. AB InBev and local university KU Leuven worked together to test more than 1,000 yeast strains, finally finding a form of fungi that produces much less alcohol when used in the brewing process.

"The first thing we had to do was make nonalcoholic beer great, and I think we're there now....Drinking zero-alcohol beer is no longer a compromise," says AB InBev's vice president of research and development, David De Schutter, who holds a Ph.D. in beer brewing.

Having reached a place it is happy with on zero-alcohol, AB InBev is pushing further in a bid to capture health-conscious consumers. It recently launched a 0% dark lager in Brazil that contains 10 grams of protein per can. The beer tastes surprisingly like an authentic alcoholic one, and is a lot less viscous than the average protein shake. That could help it appeal to gym-goers, who tend to load up on protein before or after a workout to help the body build muscle.

The beer maker has also released a version of Michelob Ultra that carries electrolytes, targeting those who want to top up on minerals before or after a workout. Another tie-up saw it brew a limited-edition strawberries-and-cream Stella for the 2026 Wimbledon tennis championships -- likely not something for beer aficionados or the athletes themselves, but instead aimed at the tennis crowd.

Brewing Competition

Competitors are also trying to crack the fast-growing market at a time when inflation and rising sobriety rates have put their top line under pressure. Heineken brews its own 0% lager -- Heineken 0.0 -- using a form of dealcoholization that it calls vacuum distillation. Earlier this year, the Dutch brewer launched a "triple-zero" lager that also has no calories or sugar, and has rolled out new elderflower and juniper flavors in a bid to broaden its appeal. Evercore ISI estimates that nonalcoholic beers account for 4% to 5% of Heineken's total sales volume.

Carlsberg is also fine-tuning its yeast strains and dealcoholization processes and trying out new flavors. Chief marketing officer Yves Briantais says making 0% beers taste almost the same as regular ones is helping brewers adapt to a trend known as "zebra striping," where drinkers alternate between alcoholic and nonalcoholic beers at a social event. Alcohol-free brews made up 3% of Carlsberg's sales volumes last year.

"I don't see this as a threat. I see it as a real growth opportunity for the future," Briantais tells Barron's. He compares beer to the yogurt market, where dairy companies used flavors and low-calorie variants to make what had been a stale product appeal to health-conscious shoppers.

Heineken and Carlsberg will give AB InBev a run for its money, but early signs suggest the Stella maker is well-placed to lead the battle for the zero-alcohol market. It's increasing revenue at a faster rate than its rivals, and has the dynamic brands to sustain that.

The Toast of Wall Street

Evercore ISI analyst Robert Ottenstein expects the nonalcoholic market to grow 25% a year in North America for the rest of the decade. AB InBev and rival Athletic Brewing, a nonalcoholic beer specialist, "will be the long-term winners" from the trend, he tells Barron's.

AB InBev is in a good position as it expects to grow zero-alcohol revenue at more than double the speed of its rivals. That could give an extra boost to its stock, which remains cheap despite a 30% rally over the past year.

Doukeris expects the nonalcoholic beer sector to grow 10 times its current size, with the U.S. spearheading growth. Nonalcoholic beers make up just 2% of that market now, versus 10% in Japan and Spain.

"I really don't think this is a fad....If it tastes great, there's a market for it," the AB InBev CEO tells Barron's. He says he'll often guzzle a can of Michelob Ultra Zero after an early-morning 15 kilometer run.

"The market globally is growing by a high-single digits; we're growing at a multiple of that," Doukeris adds, noting that Michelob Ultra Zero sales volume more than doubled in the U.S. last year. "The future is already here, but it's not evenly distributed," he says, referring to the idea that some markets will grow faster than others.

The brewer's nonalcoholic portfolio already looks strong thanks to a sports-focused branding strategy. The success story in the U.S. lately has been Michelob Ultra Zero, which became the country's top-selling zero-alcohol lager in February -- just over a year after its launch. Michelob Ultra is closely associated with major sporting events including the 2026 FIFA World Cup, where it was the official beer.

Demand is also rising fast for other AB InBev owned variants, including Corona Cero and Stella Artois 0%. Revenue for AB InBev's zero-alcohol division surged 27% from a year ago over the second quarter.

Risks remain, beyond the obvious one of consumers turning back to booze. Beer demand could falter again if the Iran war triggers a sustained flare-up in inflation. Foreign exchange is another worry, given how reliant AB InBev is on other markets including Brazil, where subsidiary AmBev is the dominant brewer.

'Sin Stock' Revival

Another so-called sin stock may offer a road map for investors. Shares of tobacco giant Philip Morris International went nowhere from 2014 to 2024 as investors fretted about smoking bans. But it developed a series of innovations to give customers an alternative way to get their fix, including vapes and smokeless products. The stock has more than doubled since 2024 thanks to surging demand for Zyn nicotine pouches.

The jump in AB InBev's stock during the past year has been powered by a rebound in volume for brands like Michelob Ultra and Stella. The brewer's strong brands and focus on innovation are "creating pockets of momentum, even as the broader U.S. business is under pressure," says Jefferies analyst Kaumil Gajrawala. AB InBev is the investment bank's top beer pick, with an 86 euro ($96.50) price target, implying 23% upside.

Deleveraging has also made AB InBev attractive to investors. Net debt fell to $64 billion from $108 billion over the past decade as it paid off its 2016 acquisition of rival SABMiller, which gave it exposure to the fast-growing sub-Saharan Africa market.

The stock looks like a bargain, even after its recent rally. It pays a semiannual dividend, and fetches 16-times analysts' expected earnings for next year, according to a FactSet poll. That's a six-turn discount to its historical average. At a capital markets day in St. Louis last month, the company said it expects earnings before interest and taxes to grow 5% to 9% a year in the medium term.

Rival brewing stocks appear cheaper, but they face a tougher outlook. Heineken 0.0 was one of the first nonalcoholic beers to go mainstream and remains a global leader, but sales growth has slowed due to stiffer competition. Heineken's CEO stepped down in May and the leadership vacuum has weighed on shares, which trade at 13-times expected earnings for 2027. They're up 7% over the past year.

Carlsberg is ramping up its own nonalcoholic efforts, but it won't benefit from the rapid growth of the U.S. market. Just 0.1% of the Danish brewer's total sales come from that market. The stock has climbed 19% over the past year. It's valued at 13-times forward earnings.

AB InBev's lineup of labels, which also includes Beck's, Busch Light, and Kona Big Wave, makes it worth paying a premium to own the biggest player in beer. Shares, recently selling around $78, would be well-positioned even without the zero-alcohol growth, but the explosion of demand for those beers adds extra froth to the investment case.