Leading European firms are on track to record an average 15.3% increase in second-quarter profits, according to LSEG I/B/E/S data — the biggest rise since the last quarter of 2022. However, this headline gain is largely driven by energy companies, whose results are being boosted by higher oil prices linked to the conflict involving Iran.
By comparison, US companies are expected to post an average profit increase of 23.7% for the same quarter. Excluding the energy sector, non-energy firms in the STOXX 600 are forecast to see only about a 6% rise in profits on average, while comparable companies in the S&P 500 could achieve roughly 19.6% growth.
Why it matters: investors are watching beyond current results for guidance on demand trends and longer-term outlooks, particularly for 2027. With second-quarter expectations largely priced into markets, company commentary and capital expenditure plans are taking on greater importance.
AI and industrial implications
A key concern for investors is that Europe currently lacks the same AI-driven earnings momentum seen in the United States. ASML, the world’s largest supplier of chipmaking equipment, provided a glimpse of AI-related demand when it raised its 2026 revenue guidance after beating second-quarter expectations.
Still, many analysts say Europe needs an additional catalyst to drive a broader recovery. Dzsitanja Kandhari, deputy head of investments at Morgan Stanley Investment Management, expects the US advantage — powered by robust AI-related results — to persist into next year, although Europe could gradually catch up. Natalija Lipihina, a strategist at JP Morgan Private Bank, is more skeptical and argues Europe would benefit from a substantial stimulus similar to last year’s German budget measures.
Headwinds
Christoph Berger, European equities director at Allianz Global Investors, warns that higher energy prices have dampened consumer sentiment, increasing pressure on sectors such as autos, which are already coping with weak Chinese demand. On the positive side, infrastructure spending tied to AI could benefit several European industrials, including semiconductor manufacturers.
Investor expectations
Market participants say that for companies linked to the AI sector, merely meeting expectations will likely no longer suffice. Martin Frandsen, a portfolio manager at Principal Asset Management, believes such firms must deliver clear, positive messages, as even outperformance may not be enough to satisfy investors.
Conclusion
Europe’s headline second-quarter profit growth is the strongest in about three years, but is heavily concentrated in the energy sector. Investors remain concerned about a lack of broad-based, AI-driven growth and are closely monitoring corporate guidance and potential policy or investment catalysts that could help Europe close the gap with the United States in the coming years.
This article is not investment advice or a recommendation. Source: Reuters.
