Europe’s industrial firms are expected to outperform across corporate sectors in the coming earnings cycle, as sharp increases in artificial intelligence investment and defence procurement drive demand for advanced machinery, components and systems.
Industrial-sector earnings per share for the MSCI Europe Industrials Index are projected to rise by about 4.9 percent year-on-year, reflecting the strength of capital goods manufacturers amid surging AI and defence spending. Analysts attribute much of the upside to the rising need for semiconductors, automation, power systems and military platforms.
Chip-equipment specialist ASML recorded €5.4 billion in new orders in its latest quarter, a result of accelerated investments in AI datacentre infrastructure, and posted net income of €2.12 billion. The company flagged expectations of flat or modest growth in China next year but underscored continued upside from global AI expansion.
In defence, European firms are benefiting from a wave of procurement commitments. Forecasts by Redburn suggest that European defence revenue from EU customers could grow at a compound rate of 10.5 – 11.5 percent annually over the next decade, driven by nations catching up to NATO benchmarks and pursuing military modernisation.
Spain-based Indra reported a 6.3 percent rise in first-half 2025 revenue and an 87.7 percent surge in net income, with the defence division outpacing other units. Its order backlog expanded 32.5 percent. Meanwhile, Germany’s Hensoldt saw a 28 percent rise in order intake during 2024, and now anticipates continued revenue growth supported by demand for advanced sensor and command systems.
The European defence sector is also undergoing structural shifts. At least 230 new defence technology start-ups have emerged since 2022, raising $1.5 billion in venture funding in 2025 alone. Observers caution that hype is outpacing substance in some segments—particularly in drone systems—with many start-ups lacking the experience necessary to scale or secure government contracts.
A critical inflection point in policy came at the 2025 NATO summit in The Hague, where member states committed to raising defence and security expenditure to 5 percent of GDP by 2035. That pledge underpins expectations of sustained procurement growth across Europe.
EU leaders have also advanced complementary initiatives. The Readiness 2030 programme aims to mobilise up to €800 billion in public and private capital for European defence enhancement. Under its framework, rules for EU budget discipline may be relaxed, and several funding channels will be redirected to defence projects.
At the industrial level, companies such as Siemens Energy are emerging as direct beneficiaries. Forecasts suggest capital-goods firms may see 15 percent growth in earnings per share, driven partly by demand for electrification, data infrastructure, and smart grid systems.
The semiconductor and high-performance computing domains are also converging. Under the EuroHPC Joint Undertaking, EU investment in AI and supercomputing infrastructure is accelerating; the bloc has earmarked €20 billion for data-centre and “AI factory” development, with ambitions to scale cross-border capabilities.
Challenges remain: supply chain constraints, export controls, and geopolitical tensions—particularly regarding China—could temper growth. Companies may struggle with delays or component shortages. Moreover, the defence industry must grapple with scaling capacity, transitioning to advanced manufacturing, and ensuring that start-ups mature into reliable prime contractors.
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