What does the EU have that the U.S. does not?

Macquarie Global Strategy argues that European equities are underappreciated, citing expected 2026 EPS growth of about 19%, a more than 300bp equity-risk-premium discount versus the U.S., and potential ROE improvement from roughly 11% toward higher levels. The firm highlights Europe’s global strengths in luxury, tourism and pharmaceuticals, while noting that 37% of EU companies used AI in 2025—comparable with the U.S.—and that European businesses are particularly competitive in robotics adoption.

Analysis

The actionable implication is not a broad "Europe catches up" trade, but selective exposure to European firms with global pricing power and under-monetized productivity upside. Luxury leaders RACE, MC and RMS can convert automation and AI into lower design-to-market, inventory and client-acquisition costs without needing to compete in foundational models; even modest operating-margin expansion would challenge the market's assumption that European earnings are structurally low-quality. The key near-term limiter is China and U.S. high-end demand, so this is a margin/valuation rerating thesis rather than a volume-led recovery call.

For healthcare, NVS and SNY offer a cleaner way to express the scientific-productivity angle than NVO, whose valuation still embeds substantial obesity-drug execution and pricing assumptions. AI-enabled discovery will not affect reported P&L materially within 1-3 months, but pipeline productivity, trial-enrollment efficiency and lower SG&A intensity can alter 2027-28 earnings-duration estimates over 6-18 months. The contrarian point is that a European multiple discount will not close merely because adoption rates improve: it requires visible ROE improvement, capital-return discipline and a weaker or stable EUR; an EUR rally can erase local-equity gains for USD investors while simultaneously pressuring exporters' translated earnings.

A broad European overweight is premature until earnings revisions turn positive relative to the S&P 500. The immediate catalyst window is upcoming quarterly guidance and 2026 capex plans, where evidence of labor-cost savings or buyback acceleration would be investable; fiscal-spending headlines without company-level margin delivery should be faded. Falsification is a renewed Chinese luxury-demand downgrade, further pharmaceutical price concessions, or a sustained EUR/USD move above 1.15 without corresponding upward EPS revisions.

Key Decisions for Investors

• Initiate a 6-12 month long MC and RMS / short a diversified U.S. discretionary proxy such as XLY basket, sized market-neutral. Target 10-15% relative upside if luxury margins stabilize and valuation dispersion narrows; stop on a second consecutive China-demand or organic-sales downgrade from either company.
• Prefer long NVS and SNY over NVO for 12-18 month healthcare exposure. This reduces dependence on obesity-drug pricing and capacity assumptions while retaining upside from pipeline and operating-productivity improvements; reassess if NVS/SNY 2027 consensus EPS fails to rise after 2026 results.
• Use a staged long FEZ / short SPY pair over the next 1-3 months only if European forward EPS revisions inflect upward versus U.S. revisions. A 5-8% relative move is plausible from multiple normalization, but exit if the EUR strengthens above 1.15 and revision breadth remains negative.
• Do not chase APP or SMCI as proxies for this theme: their earnings sensitivity remains tied to U.S. AI infrastructure spending, not European enterprise adoption. Treat European AI-adoption claims as a watch item until named companies quantify labor savings, capex reduction, or revenue conversion in guidance.