European companies are expected to report their strongest earnings season in over three years, with second-quarter profits forecast to grow by 15.3% on average, according to LSEG I/B/E/S data. However, much of this growth is driven by energy company earnings, which are expected to surge due to higher crude prices resulting from the Iran war.

Earnings Growth

Excluding energy, the gap between European and US companies becomes more pronounced. Non-energy companies in Europe’s STOXX 600 index are forecast to report an average 6% increase in earnings, while their S&P 500 counterparts are expected to deliver 19.6% growth.

Investors are concerned that Europe lacks enough AI-powered growth engines to keep pace with the United States. However, some experts believe that the gap will narrow over time, with Europe picking up pace in the coming years.

AI Opportunities

ASML, the world’s biggest supplier of chip-making equipment, has raised its 2026 sales forecasts after beating earnings expectations in the second quarter. This offers an early glimpse of the AI opportunities for European companies.

Despite the positive outlook, some sectors are facing challenges. Higher energy prices have hurt consumer sentiment, adding pressure on sectors such as autos that are already facing weaker demand in China.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.