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Investing.com -- Europe’s third-quarter earnings season opened on a solid footing, helped by renewed confidence in cyclical sectors and persistent investor enthusiasm for artificial intelligence.
With more than half of companies having reported, earnings per share (EPS) growth is tracking at 2% in Europe and 14% in the U.S., with both regions delivering above-average beats, according to Barclays.
Cyclicals, Banks, and Technology companies led Europe’s performance, marking the best quarter for cyclical sectors since early 2023, the bank said.
Tech and Materials contributed most to the outperformance, while Staples and Communication Services dragged defensives lower.
“EU Cyclicals, Banks and Big Tech delivered strong beats, and stocks reaction was mostly positive,” strategists led by Magesh Kumar Chandrasekaran wrote in a Friday note.
European companies also appeared more confident about the demand backdrop. Most see tariffs as manageable and are positive about AI-related productivity improvements.
“Transcripts show EU companies are optimistic on the outlook, less worried about tariffs, and positive on AI efficiency gains,” strategists said. Discussions around AI were focused on efficiency and demand tailwinds, particularly among Energy, Consumer Discretionary, and Industrials firms.
Despite currency (FX) headwinds weighing on top-line growth, earnings beats in Europe were above average and share price reactions more balanced than in the U.S., where misses were punished more severely.
Looking ahead, strategists pointed to further upside for cyclicals. Earnings revisions in Europe are “inching higher with Miners, Tech, Banks, and Luxury sectors seeing the most upgrades,” helped by recent improvements in purchasing manager indexes and a moderating euro.
While U.S. companies have raised guidance more aggressively, optimism across European corporates suggests Q3 strength could extend into coming quarters as AI adoption and cyclical recovery continue to drive sentiment, the team said.