LONDON: European tech earnings resoundingly beat expectations, as growing investment in artificial intelligence (AI) lifts demand and counters trade headwinds.
The MSCI Europe Technology index has delivered earnings-per-share growth of 16% for the third quarter so far, with more than 86% of the index' market capitalisation having reported.
That's well above pre-season expectations of 4.2% growth and far ahead of any other sector in the region.
Semiconductor equipment manufacturer ASML Holding NV, one of the first companies to report this earnings season, saw orders of its most sophisticated chipmaking machines jump as spending on AI infrastructure accelerated.
The report allayed fears of a slowdown next year and supported expectations that "the bearish view of a worse than expected 2026 will be put to rest," said JPMorgan analyst Sandeep Deshpande.
BE Semiconductor Industries NV, another chipmaking equipment company based in the Netherlands, also reported a surge in orders and profit ahead of expectations, buoyed by AI-related demand from Asia.
Europe's most valuable software company, SAP SE, provided a fairly mixed outlook for its key cloud business, with clients' investment decisions affected by trade tensions and a weaker US dollar.
Comments on the earnings call about growing AI adoption reassured investors. "I'm very excited about AI becoming the key enabler of our growth," said chief executive officer Christian Klein.
In the telecom space, Ericsson AB's profit soared thanks to the sale of its call-routing business, while rival Nokia Oyj posted third-quarter profit that shot past analyst expectations, with growth driven by AI and cloud clients.
"Strong demand for fibre-access, data-centre connectivity and transport networks, fuelled by the AI super-cycle, is underpinning an improving sales outlook for Nokia with the United States an increasingly important source of growth," Bloomberg Intelligence analysts Matthew Bloxham and John Butler said.
AI bullishness - supported by OpenAI Inc striking deals for data centres and chips that are now worth more than US$1 trillion - is in turn helping lift the outlook for European companies that are well placed to benefit from growing investment in the technology.
Estimates are being revised higher for the sector, following months of decline.
European tech giants still face complications as the chip industry deals with supply chain disruption, triggered by rising US-China tensions and worsened by tariff barriers.
The United States is working to block delivery of cutting-edge AI chips to China, while Beijing is trying to limit exports of rare earths critical to the chipmaking process.
Semiconductor company STMicroelectronics NV joined US rival Texas Instruments Inc in signalling that customers, especially in automotive and industrial end markets, are holding back on orders.
The auto market is particularly subdued, and may now see additional disruption after the Dutch government seized control of Chinese-owned chip manufacturer Nexperia.
Still, AI is set to be a significant tailwind, supporting growth in 2026 and beyond.
There's a "growing disconnect in the industry between myriad AI chip deals being announced and the amount of spend committed to with equipment companies," said Citigroup analyst Andrew M Gardiner. -- Bloomberg