European blue-chip companies are set to report their most robust earnings season since the fourth quarter of 2022, with an expected average profit growth of 15.3%. This positive outlook is largely attributed to a surge in energy company earnings, driven by elevated crude prices resulting from the Iran conflict. Excluding the energy sector, however, the picture is less optimistic. Non-energy companies within Europe's STOXX 600 index are forecast to see only a 6% increase in earnings, which is significantly lower than the 19.6% growth projected for their S&P 500 counterparts, according to LSEG I/B/E/S data.
Despite this overall positive trend, a substantial "AI gap" remains between Europe and the United States. While Europe is expected to see some narrowing of this gap over time, U.S. companies are anticipated to continue their strong AI-driven earnings performance. U.S. companies are forecast to achieve an average earnings growth of 23.7%. European investors are concerned about the region's lack of sufficient AI-powered growth engines to compete with the U.S. Jitania Kandhari, deputy chief investment officer at Morgan Stanley Investment Management, believes a gap will persist into next year but will narrow as Europe advances in AI. Nataliia Lipikhina, head of EMEA equity strategy at JPMorgan Private Bank, suggests Europe needs a significant catalyst, similar to Germany's fiscal stimulus last year, to truly compete.
While Europe lacks the concentration of memory chipmakers and hyperscalers that have fueled U.S. growth, there are emerging signs of AI-related contributions. Industrial sectors, especially those linked to AI infrastructure and technology like semiconductors, are showing growth. ASML, a major chip-making equipment supplier, recently boosted its 2026 sales forecasts after exceeding second-quarter earnings expectations, providing an early example of AI opportunities for European firms. However, investors are focusing more on future demand and profit guidance into 2027, rather than just the current results, as existing valuations largely reflect current earnings expectations.
