BY COMFORT OGBONNA
European companies are heading into their strongest earnings season in more than three years, with profits expected to rise sharply, but investors remain cautious about whether the region can produce enough artificial intelligence-driven growth to compete with the powerful technology expansion taking place in the United States.
Second-quarter earnings for European blue-chip companies are forecast to increase by an average of 15.3%, the strongest growth rate since the final quarter of 2022, according to LSEG I/B/E/S data. However, much of the improvement is expected to come from energy companies benefiting from higher crude oil prices linked to the conflict involving Iran, rather than from broad-based economic strength.
By comparison, U.S. companies are expected to deliver stronger overall earnings growth, with profits projected to rise by an average of 23.7% during the same period.
The difference becomes even more significant when energy companies are excluded. Non-energy companies in Europe’s STOXX 600 index are expected to report average earnings growth of only 6%, while companies in the U.S. S&P 500 index are projected to achieve approximately 19.6% growth, highlighting the widening performance gap between the two regions.
Some investors believe the difference could gradually shrink as European companies increase their investment in artificial intelligence and related technologies. Jitania Kandhari, deputy chief investment officer of the solutions and multi-asset group at Morgan Stanley Investment Management, said the United States is likely to maintain an advantage because of its strong AI-related earnings momentum, but Europe could begin closing the gap over time.
“There will still be a gap next year because the U.S. has very strong, powerful AI earnings and that will continue, but there will be some narrowing where Europe will pick up,” Kandhari said.
However, other market experts remain less optimistic, pointing to Europe’s slower economic growth and lack of a major catalyst capable of transforming investor sentiment.
Nataliia Lipikhina, head of EMEA equity strategy at JPMorgan Private Bank, said Europe needs a significant boost similar to Germany’s recent fiscal stimulus measures before the region can achieve stronger market performance. The firm currently favors U.S. and emerging market equities over European stocks.
Because expectations for second-quarter earnings have already been largely reflected in company valuations, investors are expected to pay closer attention to corporate forecasts, demand trends, and profit outlooks extending into 2027 rather than focusing only on reported results.
The technology sector will be a major area of interest, particularly as investors assess whether European companies can benefit from the global AI boom. An early indication came from semiconductor equipment manufacturer ASML, which raised its 2026 sales forecast after reporting stronger-than-expected second-quarter earnings. The Dutch company remains one of the most important suppliers in the global chip industry, providing advanced equipment needed to manufacture high-performance semiconductors.
Despite these positive developments, challenges remain for European businesses. Higher energy prices have weakened consumer confidence, creating additional pressure on industries such as automobile manufacturing, which is already dealing with declining demand in China and increased global competition.
Christoph Berger, chief investment officer for European equities at Allianz Global Investors, said that while AI-related opportunities are emerging, the broader European economy continues to face obstacles.
Several major European companies reporting earnings next week will provide further insight into the health of the region’s corporate sector. Investors will be watching results from companies including pharmaceutical giant Novartis, Italian banking group UniCredit, software leader SAP, and automaker Volkswagen for signs of how businesses are navigating current economic conditions.
AI and technology investment will remain a central focus throughout the earnings season. While Europe does not have the same concentration of leading memory chip producers or large-scale cloud computing companies, often referred to as hyperscalers, that have powered much of the U.S. technology boom, analysts say European industrial companies can still benefit from the expansion of AI infrastructure.
Berger noted that investments in AI-related infrastructure are creating opportunities for European manufacturers, semiconductor companies, and industrial technology firms. Companies involved in areas such as automation, chip production, and advanced equipment could see increased demand as businesses worldwide expand their AI capabilities.
However, investors are becoming increasingly selective. Martin Frandsen, a portfolio manager at Principal Asset Management, said companies linked to artificial intelligence will need to demonstrate more than just meeting expectations to attract continued investor support.
According to Frandsen, businesses benefiting from AI will need to provide strong growth signals and demonstrate clear long-term opportunities.
“It’s probably not enough to get in line. It’s probably not even enough just to get ahead,” he said.
As the earnings season unfolds, European companies will attempt to prove that they can capture a meaningful share of the AI-driven economic expansion. While the region faces structural challenges compared with the United States, investors are looking for signs that industrial strength, semiconductor investments, and AI infrastructure growth can help European markets regain momentum.
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