--- title: "European Stocks Quietly Outperform US Equities! Goldman Sachs: As Markets Question AI Investment, Europe's 'Non-AI' Focus Becomes an Advantage" type: "News" locale: "en" url: "https://longbridge.com/en/news/295503554.md" description: "Goldman Sachs argues that as doubts mount over the returns on AI capital expenditure and US valuations remain elevated, Europe's market structure—emphasizing cash flow rather than chasing AI trends—has become a unique advantage. With high Total Shareholder Return, low valuations, and the strongest foreign inflows in a decade, European stocks are outperforming their US counterparts. Goldman Sachs has raised its 2026 EPS growth forecast for the STOXX 600 Index to 15%, with first-half growth already reaching 14%, the strongest in three years" datetime: "2026-08-11T08:12:19.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/295503554.md) - [en](https://longbridge.com/en/news/295503554.md) - [zh-HK](https://longbridge.com/zh-HK/news/295503554.md) --- # European Stocks Quietly Outperform US Equities! Goldman Sachs: As Markets Question AI Investment, Europe's 'Non-AI' Focus Becomes an Advantage European equities are quietly rewriting the market narrative. The latest research report from Goldman Sachs points out that many "conventional wisdoms" surrounding European stocks are being disproven by data—from earnings growth and capital returns to capital inflows. The actual performance of European equities is far stronger than generally perceived. At a time when returns on AI capital expenditure are being questioned, Europe's market structure, which prioritizes cash flow over chasing AI, has instead become an advantage. In a research note dated August 11, Goldman Sachs raised its full-year 2026 earnings per share (EPS) growth forecast for the STOXX Europe 600 Index from 10% to 15%, citing that year-on-year EPS growth in the first half had already reached 14%, marking the **strongest performance in three years**. Meanwhile, since the beginning of 2025, despite tariff shocks and energy supply crises, the total return of the European STOXX Index has surpassed that of the S&P 500. **Cumulative gains in European banking stocks since 2022 have significantly outperformed the "Magnificent 7" of US stocks**. In terms of capital flows, European equities are experiencing the strongest net inflows in a decade (excluding 2021), driven primarily by foreign investors. Goldman Sachs believes that **behind this trend is the urgent need for global investors to diversify away from concentration risks in the US dollar and US equities**. More importantly, as the return on investment and financing costs for AI capital expenditure by hyperscalers face increasing scrutiny, **Europe's relative advantage as a market that "generates cash rather than consumes it" is becoming prominent**. ## Earnings Growth: Strongest in Three Years, Full-Year Forecast Raised **The long-held market assertion that "Europe lacks growth" stands in sharp contrast to the latest earnings season data.** According to Goldman Sachs, the year-on-year EPS growth rate for the STOXX 600 in the first half reached 14%, the highest level in nearly three years, achieved despite headwinds from energy supply shocks. Even excluding the commodities sector, EPS growth remained at approximately 7%. The median earnings growth rate among STOXX 600 constituents was also around 7%, indicating that this earnings recovery has broad breadth and is not merely a structural rally driven by commodity prices. Earnings forecasts for both 2026 and 2027 have been revised upward. Goldman Sachs characterizes this cycle as a "post-modern cycle"—defined by high interest rates, high inflation, and accelerated investment in infrastructure and energy security. This environment naturally favors the numerous "Heavy Asset, Low Obsolescence" (HALO) companies in the European market. These companies benefit from related capital expenditures while possessing strong resilience against AI disruption. ## Profitability: ROE Continues to Improve, Banks Make Significant Contributions **"Low profitability in Europe" is another label challenged by Goldman Sachs.** The report acknowledges that Europe's Return on Equity (ROE) is lower than that of the US, but emphasizes that US ROE is at an anomalously high level, and that European ROE has improved significantly in recent years. **The financial sector is the core driver.** Between 2008 and 2021, a low-interest-rate environment and the pressure to rebuild capital in the post-financial crisis era dragged down the overall ROE of the European banking sector for a long period. Both of these factors have now reversed. Additionally, European equities have significant exposure to themes such as defense spending, infrastructure, electrification, and data centers, further supporting the improvement in profitability. ## Relative Performance: European Banks Outperform the "Magnificent 7", Again Beating the S&P 500 This Year The impression that "European stocks always underperform" is difficult to sustain in light of recent data. Goldman Sachs points out that since the post-pandemic era, the performance of European equities has been far more complex than the market narrative suggests. Data shows that since 2022, the cumulative total return of European banking stocks (SX7P) has significantly exceeded that of the Magnificent 7. Year-to-date, the median gain among STOXX 600 constituents has reached double digits, while the S&P 500 Index (excluding technology stocks) has performed relatively poorly during the same period. Goldman Sachs attributes Europe's outperformance to: **the dampening effect of high US valuations, the impact of high interest rates on long-duration US tech stocks (which simultaneously benefits European banks), questions regarding ROI triggered by the sharp rise in capital expenditure by hyperscalers, and the decline in risk premiums brought about by the significant expansion of fiscal spending in Germany.** However, Goldman Sachs also warns that elections in France, Italy, Spain, and other countries in 2027 may pose greater political risks to European equities. ## Energy Prices: A Tailwind for Equities, Not a Headwind Goldman Sachs believes that while rising energy prices drag on the European economy, they are positively correlated with EPS for European equities—another important divergence between the economy and the stock market. The reason lies in the higher weighting of the energy and basic resources sectors in European indices. Utilities, chemicals, and financial sectors can pass on costs through contracts, benefiting from high inflation and high interest rates. For sectors such as telecommunications, media, and healthcare, the impact of energy prices is negligible. The only sector clearly harmed is consumer discretionary. However, if energy prices remain persistently high and begin to suppress demand, corporations' ability to pass on costs will be tested. Historical experience from 2022 to 2023 shows that after initial EPS upgrades, revisions eventually turned downward as growth slowed and margins came under pressure. ## Capital Inflows: Strongest in a Decade, Led by Foreign Investors **The claim that "no one is buying Europe" is also inconsistent with reality.** Goldman Sachs data shows that European equities are currently experiencing the strongest net capital inflows in a decade (excluding 2021), driven almost entirely by foreign investors. The primary motives are to diversify concentrated exposures to the US market and the US dollar, and to avoid the risks of high valuations and concentrated holdings in US stocks. The corporate sector has also become an important buyer of European equities: **Buyback volumes in the banking and energy sectors continue to expand, and M&A activity has accelerated significantly. Both domestic and foreign buyers are actively participating, providing support to Goldman Sachs' basket of European M&A candidates and small-and-mid-cap stocks.** Goldman Sachs points out that a key difference between Europe and the US is the lack of sustained retail capital inflows. Total capital inflows in the US and Asian markets still far exceed those in Europe, supported by strong retail buying power—a component long missing from the European market. ## Valuation Discount: Partially Justified, But Exceeds Fundamental Explanation Goldman Sachs acknowledges that European equities trade at a valuation discount relative to the US, but argues that the magnitude of the discount exceeds what fundamentals can explain. Data shows that within the same sales growth ranges, US companies are valued higher than their European counterparts (except in the lowest growth range); dividend yields across all European sectors are also higher than their corresponding US sectors. Goldman Sachs believes that **Europe's valuation discount has its rationale—European policymakers have historically favored more regulation and taxation, and the sustainability of corporate earnings is weaker than in the US—but the extent of the discount has exceeded reasonable levels.** Among them, the discount for the UK FTSE 350 is even deeper. Goldman Sachs believes the logic for a re-rating of the UK market is more compelling, a view corroborated by foreign investors' M&A interest in UK assets. ## AI Lag: Short-term Disadvantage, Potential Medium-term Buffer Europe is indeed lagging in AI: data center construction is behind schedule, investment in frontier models is insufficient, and long-term productivity gains face risks. Goldman Sachs' European utilities team believes that the energy investment required to support AI infrastructure will bring a super-cycle of earnings to the sector. However, Goldman Sachs also points out that in every historical wave of technology, pioneers often over-invest, and the ultimate beneficiaries are the latecomers who can leverage the results of initial investments. > More importantly, the AI capital expenditure of current hyperscalers can no longer be fully covered by free cash flow. The US market is seeing increasing debt and equity financing to support these expenditures, whereas Europe does not face the same financing pressure—equity issuance in Europe has increased moderately, and buyback volumes remain substantial. In terms of free cash flow yield, European equities offer a cash flow yield higher than bonds and significantly better than the US market. Goldman Sachs also cites the "DeepSeek moment" as evidence: > When NVIDIA plummeted 27% in a single day, the Magnificent 7 fell 16%, and the S&P 500 dropped 8%, European equities achieved positive returns thanks to their value-stock orientation and lower concentration in technology stocks, providing an effective hedge for investors. ### Related Stocks - [GS.US](https://longbridge.com/en/quote/GS.US.md) - [.SPX.US](https://longbridge.com/en/quote/.SPX.US.md) - [NVDA.US](https://longbridge.com/en/quote/NVDA.US.md) - [W4VR.SG](https://longbridge.com/en/quote/W4VR.SG.md) - [NVD.DE](https://longbridge.com/en/quote/NVD.DE.md) ## Related News & Research - [SpaceX AI investment gamble will make it a big winner, firm says](https://longbridge.com/en/news/295564086.md) - [19,043 Shares in SpaceX $SPCX Bought by Sage Capital Advisors llc](https://longbridge.com/en/news/295516703.md) - [Why Is Nokia Stock Surging on Tuesday?](https://longbridge.com/en/news/295558292.md) - [CoreWeave Q2 Preview: Investors May Be 'Better Off Sitting This One Out,’ Expert Says](https://longbridge.com/en/news/295437105.md) - [A Recent Email Within Microsoft Seems to Confirm What Many Suspected: Tech Companies Are Overspending on AI](https://longbridge.com/en/news/295546786.md)