UBS has upgraded its outlook for European corporate earnings, forecasting 15% growth in 2026 following three years of stagnation. The Swiss bank’s strategists now expect a sustained earnings upcycle, citing accelerating profit growth in the second quarter. Excluding energy, European profits rose 11% year-over-year, the fastest pace since 2022, while revenues climbed 8% YoY, the strongest increase since 2022.
The bank’s lead strategist, Dean Turner, described the trend as the early stages of a more durable earnings recovery. UBS has outlined four investment opportunities aligned with this shift. The first centers on European industrials and IT firms supplying capital expenditure enablers, particularly those exposed to AI infrastructure, electrification, and automation. UBS estimates roughly 55% of the MSCI Europe IT sector’s market capitalization consists of businesses providing semiconductor equipment, power systems, cooling, and data-center components.
European banks are highlighted as a second opportunity, benefiting from rising loan demand and capital markets activity. Eurozone corporate loan growth accelerated to 4.4% year-over-year in July 2026, while the average loan-to-deposit ratio in the region declined to 93% in the first quarter of 2026, down from over 140% near the global financial crisis. UBS also favors European leaders—companies positioned to capitalize on structural trends such as Industry 4.0, automation, defense, infrastructure investment, and decarbonization.
The final opportunity is Swiss mid-caps, which UBS views as the preferred route to access Switzerland’s recovery. The strategists cite a mix of structural growth, cyclical upside, and reasonable valuations. A rebalancing of the SMIM mid-cap index is scheduled for September 18.
UBS’s outlook is further supported by a surge in defense spending. NATO members agreed in June 2025 to raise defense and security spending targets to 5% of GDP by 2035. Spending by European NATO members and Canada rose 19% in 2025 and is projected to increase another 11% in 2026, reaching $634 billion. The bank expects this trend to sustain demand for defense-related investments.
