Broad-based earnings growth in Europe, yes please
Summary
- European companies in the Stoxx 600 index are expected to see a 20.7% year-on-year earnings growth in Q3, with energy and industrial sectors performing well beyond AI-related gains.
- The energy sector is anticipated to lead earnings growth due to rising oil and gas prices, driven by geopolitical tensions, although this support may diminish if tensions ease or demand decreases.
- Technology sector earnings are projected to grow by nearly 33%, benefiting from data center investments, while industrial earnings are expected to increase by 11%.
- European stock markets offer attractive valuations compared to the US, particularly in banks and consumer staples, but a rapid decline in energy prices poses a significant risk to earnings growth.
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Automatic translation: Originally published in Finnish 20/10/2026, 05:09 GMT. Give feedback here.
European companies are expected to post a strong Q3. Earnings growth extends beyond the AI hype, as energy companies and the industrial sector have performed well.
I recently read a Reuters article reviewing the surging earnings expectations for European companies. According to the article, the earnings of companies in the Stoxx 600 index will grow by 20.7% year-on-year in the third quarter. The pace is slowing from 24% in the second quarter, but it is still at a peak rate compared to previous years. The topic is very timely, as companies representing over half of the index's market capitalization will release their earnings over the next two weeks.
Typically, analysts in Europe cut their estimates ahead of the earnings season, but estimates have now been raised, as third-quarter earnings growth was still expected to be of around 14% back in July. Because the bar is already high, investors will pay attention above all to the fourth-quarter outlook.
The largest earnings growth is expected in the energy sector. The war between the US and Iran has driven up oil and gas prices and, consequently, the sector's earnings expectations. The Stoxx Europe Energy index has risen by over 40% since the beginning of the year. Indeed, energy prices have been widely considered the biggest reason for the upward revisions of European earnings estimates this year. However, this support may fade if Middle East tensions ease or if high prices begin to dampen demand.
Europe lacks AI giants like NVIDIA, but data center investments benefit many smaller equipment manufacturers as well as raw material and industrial companies. Technology sector earnings are expected to grow by nearly 33% and industrial earnings by 11%.
According to Reuters, banks have been the best-performing sector globally over the past four years. However, political uncertainty has weighed on them by 7% since early September, while the broader Stoxx 600 has fallen by 1.7%. The sector's estimated P/E is 10x, and its earnings are expected to grow by ~8% annually over the medium term. Following the years in the wilderness, banks' capital positions are strong and lending is picking up.
European consumers are also forecast to pick up. The P/E of Europe's consumer staples sector is 13.6x, and the valuation is 35% lower than in the US.
European earnings growth is strong, but it still depends on energy prices. However, it is a positive sign that earnings growth is broadening to industries, raw materials, and technology. The valuation of European stock markets relative to the US is attractive, particularly in banks and the consumer staples sector. The biggest risk is a rapid fall in energy prices, which would turn the energy sector's earnings growth from a pillar of support into a drag.
