1. AI disruption is dominating earnings calls.

Corporate managements increasingly acknowledge the business impact in earnings calls.

2. The UK is considering much higher defense spending.

The companies that are most exposed to UK defense are Qinetiq (c68% of sales), Babcock (c60% of sales), and BAE (c26% of sales). Companies with a smaller exposure include Leonardo (c10%) , RENK (c7%), and Thales (c4-5%).

Below: Defense offers the highest EPS growth of any EU sector.

3. Hardware versus software.

4. Rotation into European “infrastructure”.

The September 2024 "Draghi report" on the future of European competitiveness laid the groundwork for debate on reversing years of underinvestment in European infrastructure. The report called for an additional €800 Bn in annual investments.
German policy makers responded soon after. Following their February election victory, the CDU-led coalition announced ambitious spending plans, unveiling a €500 billion infrastructure package.
Infrastructure, Construction and Logistics stand to be key beneficiaries, with spending directed towards transport – notably rail modernization-digital infrastructure, health, and housing.

Below: EU Infrastructure - Performance YTD

5. European banks will be “AI winners.”

There are only a handful of sectors that have posted earnings growth in Q4, with financials being one of them.
Deutsche Bank said this quarter is the twelfth in a row that banks have beaten estimates.
"We're seeing financials as the sector with the most guidance upgrades relative to downgrades”.
"We still like the sector and the earnings environment still looks pretty good."

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