European companies are heading into their strongest earnings season in more than three years, and the numbers tell the usual story: profits rise, investors fret, and the people doing the actual work stay somewhere offstage. Second-quarter profits of European blue-chip companies are expected to grow by 15.3% on average, the most since the last quarter of 2022, according to LSEG I/B/E/S data. Much of that rebound comes from energy company earnings, boosted by higher crude prices because of the Iran war. War, in other words, still does what it always does for capital. It fattens margins.
Profits Up, Pressure Down Below
The gap with the United States remains wide. Earnings at U.S. companies are forecast to grow 23.7% on average, and when energy is stripped out the contrast gets sharper. Non-energy companies in Europe's STOXX 600 index are forecast to report an average 6% increase in earnings in the quarter, while their S&P 500 counterparts are expected to deliver 19.6% growth, the LSEG I/B/E/S data shows. That’s the single market in action: one bloc of capital trying to keep up with another, while the rest of society gets treated as background noise.
Jitania Kandhari, deputy chief investment officer of the solutions and multi-asset group at Morgan Stanley Investment Management, said the gap is likely to narrow over time. "There will still be a gap next year because the U.S. has very strong, powerful AI earnings and that will continue, but there will be some narrowing where Europe will pick up," she said. The language is pure boardroom catechism. Strong, powerful, pick up. The people who make the profits sound like weather systems, as if no one chose this arrangement.
Nataliia Lipikhina, head of EMEA equity strategy at JPMorgan Private Bank, said Europe needs a catalyst. "For Europe to really start performing, you need some sort of a catalyst, something similar to what we saw last year with the German fiscal stimulus that we just haven't seen yet," she said. JPMorgan Private Bank prefers U.S. and emerging markets. So much for the Brussels dream of balanced prosperity. The money still votes elsewhere.
AI, Energy and the Corporate Race
Investors are likely to focus more on what companies say about demand and profits into 2027 than on the results themselves, with reporting set to kick off in earnest next week. That means the ritual is already underway: executives speak, analysts listen, and the market decides whose future gets priced in. ASML, the world's biggest supplier of chip-making equipment, raised its 2026 sales forecasts on Wednesday after beating earnings expectations in the second quarter, offering an early glimpse of AI opportunities for European companies.
Christoph Berger, CIO Equity Europe at Allianz Global Investors, said higher energy prices have hurt consumer sentiment and added pressure on sectors such as autos, which are already facing weaker demand in China. Drugmaker Novartis, Italian lender UniCredit, software heavyweight SAP and Volkswagen are due to report earnings next week, and Berger said they could offer clues on the health of the European corporate sector. The corporate sector, naturally, gets a health check. The people paying the bills get inflation, weak demand, and the bill for everyone else’s growth model.
Tech and AI will be a key focus, even though Europe lacks the concentration of memory chipmakers or so-called hyperscalers that have driven earnings growth in the United States. Berger said there are still AI-related infrastructure investments that help many European industrials. "We see also contribution and growth from the industrial sectors, ... names which are related to the AI infrastructure topic, also from technology," he said, pointing to semiconductors. The phrase says enough. Infrastructure for AI, growth for industrials, returns for investors. The rest of Europe is left to admire the machinery from a distance.
Martin Frandsen, portfolio manager at Principal Asset Management, said expectations remain high and investors are unlikely to reward AI-linked companies simply for meeting forecasts. "It's probably not enough to get in line. It's probably not even enough just to get ahead," he said. That’s the logic of the market stripped bare. Even when the numbers are good, they’re never good enough. The machine keeps demanding more, and the people below it keep absorbing the cost.