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In Summary
A challenging but still holding macroeconomic backdrop. Global growth is expected to ease to +2.5% in 2026 before rebounding to +2.9% in 2027, propped up significantly by AI investment, which alone contributes roughly a third of US growth. Strip that pillar out and the divergence is stark: the US grows +2.1%, the Eurozone limps at +0.9% with almost no AI upside and China holds at +4.7% on exports and high-tech manufacturing despite weak domestic demand. A reloaded US trade war compounds the split even as Middle East de-escalation removes one acute risk while still leaving flare-up potential on the table. Across our sectors, this uneven backdrop is producing three distinct realities rather than one shared cycle.
The semiconductor industry is riding the AI supercycle while other tech-related sectors face mixed outlooks. Hyperscaler infrastructure spend is expected to reach USD725bn in 2026 (+80% y/y) and above USD1trn in 2027, propelling global chip sales toward USD1.5trn. As a result, semiconductor sales growth stands at about +90% thanks to the rise in memory price. The picture is mixed for other tech-related sectors: Software & IT services demand remains solid (+3.6%) but investor confidence has cracked, with leading names down 25-30% on GenAI-erosion fears. For computers and smartphones, AI is a cost story as component shortages are compressing margins while PC and smartphone volumes fall 11-14%, while telecom services benefit via data-center interconnect but are exposed to any pullback in AI capex, and to LEO-satellite competition eroding high-margin niches.
Cyclical sectors are absorbing higher rates, geopolitical turmoil and a reloaded trade war. A number of sectors are facing still-restrictive financing costs, tariffs and thin pricing power that forces companies to absorb rather than pass through input-cost inflation. The automotive sector has moved from unit volume to software and data monetization, with Chinese EV competition especially hurting Europe. Construction remains rate-sensitive, with residential and commercial demand still soft, offset mainly by data centers. Retail, textiles and household equipment are seeing consumers trading down, keeping headline sales resilient but eroding gross margins underneath. Transportation remains in flux, with shipping turbulence in the Middle East and high oil prices. Transport equipment and machinery & equipment are benefiting from defense spending but the recovery is gradual and vulnerable to a renewed growth or trade shock. In the chemicals sector, Europe's energy-cost disadvantage, sharpened by the Middle East conflict's exposure of import-dependent feedstock flows, is turning a cyclical downturn into a lasting divide between US/Middle East cost leaders and higher-cost European producers. Lastly, the metals sector is benefiting in segments close to copper, lithium and rare earths (with strong demand tied to electrification and AI infrastructure) while iron & steel remains challenged.
Traditional defensive sectors have different risk profiles in the current context. Pharma still benefits from strong patents and pricing power, while its US/Europe innovation base largely insulates it from the turbulence hitting everything else. In the energy sector, oil & gas players, especially US producers, are benefiting from higher oil prices but Middle Eastern, Asian and European players face a number of challenges, from sourcing feedstocks to reaching customers. Renewables might benefit in the current context of heightened focus on energy sovereignty and resilience.
Earnings remain resilient, but growth is increasingly concentrated in AI, defense and energy, while cyclical sectors continue to face significant headwinds. In the US, revenue growth reached +15.2% y/y, its strongest pace since Q2 2022. Semiconductors were the standout, supported by the AI investment supercycle, while energy benefited from higher oil prices. Metals & mining also improved sharply, although gains largely reflected tariffs, stronger commodity prices and policy-driven margin expansion rather than broad-based demand. Chemicals showed signs of recovery, but underlying conditions remain fragile. Airlines were a clear weak spot as higher fuel costs drove a -44% y/y EPS decline. Europe delivered similarly strong headline revenue growth (+11.2%), but performance was concentrated in energy, defense and semiconductors. Automotive, transportation, discretionary retail and metals remained under pressure amid weak demand, high financing costs and global competition. Chemicals rebounded as geopolitical disruptions temporarily improved pricing power, though Europe’s structural energy-cost disadvantage remains.