WHAT TO WATCH FROM EUROPEAN SEMICONDUCTOR EARNINGS
Q2 earnings season is upon us and everyone is looking at the technology sector for further evidence that the AI trade has more room to run.
While Europe's tech hardware sector is smaller than other regions - namely the U.S., Japan, South Korea and Taiwan - it still has a few companies that will be closely watched this earnings season.
Jefferies expects all semiconductor companies to sound incrementally more positive on their outlook for the second half of the year and into 2027.
But European semis stocks had a record quarter in Q2, rising 69%, suggesting a further re-rating may be elusive.
"The main share price driver was once again multiple expansion, resulting in all stocks trading at or well above peak multiples," Jefferies says in a note.
"Given the inherently cyclical nature of the semiconductor industry, we believe further re-rating may be limited in H2-26. Earnings upgrades could, therefore, become the bigger determinant of share price performance."
From that perspective, Jefferies prefers stocks where they see further scope for earnings upgrades.
"Here we see greater FY27 EPS upgrade potential for analogue stocks like IFX and STM which are at the early stages of an analogue upcycle," they say.
They also expect demand to continue to strengthen for ASML, ASM and VAT and see further upgrades to estimates, but believe the extent of the upgrades will be lower than post Q4 2025 and Q1 2026 results.
Ahead of earnings season, Jefferies has raised its price targets on ASML EURONEXT:ASML, STMicro EURONEXT:STMPA, ASM EURONEXT:ASM, VAT SIX:VACN and Melexis EURONEXT:MELE.