1. Strategists (on average) see little upside left in the European index this year.

Earnings downgrades and geopolitics will keep a lid on European stocks for the rest of the year, according to strategists surveyed by Bloomberg.
The Stoxx Europe 600 Index will finish 2026 about 1% above Wednesday’s close, at 623 points, according to the average of 17 forecasts. The index has largely clawed back its Iran-war driven losses, but strategists said the bounce looks hard to sustain as the full effects of higher energy costs are yet to be felt.

Below: Strategists agree to disagree.

Anyway, we’re not interested in the index. It’s all about picking the right sectors/thematics…see number 2.

2. Geopolitics is accelerating a shift toward defense, energy and technology, as governments prioritize security and become more self reliant.

The MSCI Europe Aerospace and Defense Index, which includes heavyweights Rheinmetall, Leonardo and Rolls-Royce, has gained roughly 35% over the past year. Europe is preparing for next generation warfare, government contracts are likely to flow to companies like BAE Systems and Thales, which have exposure to electronic warfare and air defense.
Germany is the lynchpin. Europe’s largest economy is ramping up military spending in response to Russian aggression, and the importance of its €500 billion infrastructure program “cannot be overstated,” according Hugh Gimber, global market strategist at JPMorgan Asset Management. “If Europe was determined to reduce its dependency on other nations coming into 2026, that determination will only have been strengthened by the events in the Middle East over recent weeks.”

Below: Stocks geared to fiscal stimulus have been major winners.

3. All European defense stocks look attractive.

We expect every European defense company to benefit from the current super-cycle, which has several powerful drivers.
• Europe has under-invested in Defense for 30 years.
• The US appears less willing/able to pay for Europe’s security.
• The threats to European security may be higher than at any time since the end of the Cold War.
• International institutions appear weaker than they have for decades (e.g., UN; NATO)

Here is CSG, one of the biggest defense companies in Europe and a growing player in the global defense market.
CSG reiterated its guidance for 2026 and even increased its assessment of its total order backlog & pipeline to €42bn from €32bn.
CSG had an IPO price of 25 Euros and is trading around 21 Euros now.
“We see significant upside to almost all of the European Defense stocks, but CSG stands out as especially attractive.”, says JPMorgan.

4. Agentic AI marks a structural shift from compute to orchestration.

While GPU demand remains strong, each AI model now requires more coordination, memory and system-level compute, widening the AI spend pool beyond accelerators to CPUs and the broader infrastructure stack. As AI transitions from generation to autonomous action, the computing bottleneck is shifting towards CPU and memory, driving a step-change in general-purpose compute intensity.

Below: AI transitions from 'generation' to 'autonomous' action in agentic AI.

Source: MS

5. Iran conflict will boost the shift to clean energy.

Electric buses have gone from 12% to 56% of new city bus sales in Europe.
At this rate, Europe's 2035 target of 100% zero emission bus sales could be reached as early as 2028.
Why are buses leading the switch to electric?
✅ Fixed routes make charging predictable
✅ High utilisation makes fuel savings significant
✅ Depot charging avoids the need for widespread public infrastructure

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