European technology firms are surpassing expectations this quarter, joining the financial and health-care sectors as standout performers in the current reporting season. Fueled by strong demand for artificial intelligence, the technology sub-sector within the MSCI Europe index achieved an average earnings growth of 5.5% for the fourth quarter, significantly exceeding pre-season projections of just 0.5%. The MSCI Europe Index itself reported a 1.1% growth in per-share earnings, surpassing the anticipated decline of 1.3%.
Alongside health care and financial services, technology has emerged as one of the three sub-indexes that have delivered the most positive surprises this season, with over 70% of the market value in the MSCI Europe index already reported. While pharma and banking have been strong performers in European earnings over the past year, technology is making its mark as a fresh contender. Key contributors to the sector’s growth in the fourth quarter included ASML Holding NV and Nokia Oyj, as highlighted by Bloomberg Intelligence strategists Kaidi Meng and Laurent Douillet. Conversely, the sector faced challenges from companies like STMicroelectronics NV and Infineon Technologies AG. While semiconductor firms are experiencing difficulties, equipment manufacturers are faring better. According to Bernstein analyst Sara Russo, Infineon and STMicro are struggling with “low visibility” and are still searching for stability amidst weak demand in automotive and industrial markets, with limited exposure to AI compared to ASML.
ASML, the largest company in the sub-index by market capitalization, reported bookings that were double what analysts had anticipated for the quarter. The company is poised to benefit from the escalating demand for chip-making machinery as investments in AI grow. Similarly, Nokia’s mobile networks division, which produces 5G technology, is showing recovery after two years of operators delaying costly upgrades. The network infrastructure segment also contributed to overall sales growth, with outgoing CEO Pekka Lundmark noting a key focus on the anticipated rise in data centers. SAP SE, the second-largest company in the sub-index and a major software player, is also capitalizing on the AI trend. The firm raised its revenue forecast for 2025 and reported a 29% increase in its cloud backlog, driven by growing client interest in its AI business services.
According to Meng, the positive impact of AI on earnings per share (EPS) for companies like ASML and SAP is just beginning to surface, although demand for AI remains in its infancy. Looking beyond 2025 and 2026, the future for ASML will hinge on whether increased AI adoption by end-users can justify further capital expenditures, Douillet added. Prospects for the broader technology sector are improving, but a sustained recovery is not assured, according to Meng and Douillet. Potential challenges include US tariffs, reduced demand for chips due to lower electric vehicle production and industrial manufacturing, and ongoing economic weakness in China and Europe. Tariffs could primarily affect Infineon and STMicro, but their impact may also extend to ASML, as noted by Russo. She explained, “If there’s reduced demand for chips due to tariffs, semiconductor companies might cut back on equipment purchases, but that’s more of a secondary issue for ASML rather than a direct concern.”
