Why are Europe’s equity titans lagging far behind US Magnificent 7?

European mega-caps trail US ‘Magnificent 7’ amid lack of AI gains, while also facing China’s slowdown and rising geopolitical risks amid tariff uncertainties.

European mega-cap stocks continue to struggle in keeping pace with the extraordinary performance of the United States’ much-lauded “Magnificent Seven” tech titans.

Year-to-date, the Magnificent Seven have surged by 55% on average, while European counterparts like the ‘Eurostars‘ or the ‘GRANOLAS‘ are trudging far behind, posting a modest 7.6% and 0.6% average gain, respectively.

The performance gap between the US and Europe extends beyond mega-cap stocks, with the S&P 500 gaining 25% year-to-date, compared to just a 5% rise for European equities, as tracked by the Stoxx 600.

Euronews spoke with Jordy Hermanns, portfolio manager and investment strategist at Aegon Asset Management, about the factors driving this wide market gap between the two sides of the Atlantic.

Hermanns pointed to a clear catalyst: “The technology and AI sectors remain powerful drivers of returns, underpinning the continued strength of the Magnificent 7 stocks.”

Europe is missing the AI Boom

According to the expert, the underperformance of European stocks largely stems from structural differences in market composition and external headwinds.

The Magnificent 7 — including tech powerhouses like Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla — have been propelled by the ongoing boom in artificial intelligence and its integration across industries.

“This AI return driver is basically absent for European stocks,” Hermanns says. Without the AI tailwind, European equities lack the explosive catalyst that has propelled US markets to new heights.

China exposure and fresh macro headwinds

Europe’s top firms are also grappling with region-specific challenges.

European multinationals have significant exposure to China, where slower economic growth and lingering geopolitical tensions are dampening demand. This has particularly affected the luxury sector and the French titan LVMH, which depends heavily on Chinese consumers.

In addition, geopolitical uncertainties, including trade policies under the new US administration, have disproportionately weighed on European businesses.

“Geopolitical tensions appear to hurt European firms more,” Hermanns adds.

European automakers and luxury brands may face additional hurdles if former US President Donald Trump’s proposed tariffs resurface. Trump has suggested sweeping measures, including a 60% tariff on Chinese imports and a 10% universal tariff on goods from other countries.

Ferrari, among other Eurostar companies, could be particularly vulnerable given its reliance on exports to the US and China. While demand for high-end European goods tends to be resilient, the uncertainty surrounding tariffs—and potential retaliatory measures—makes investors uneasy.

“It’s clear that investors don’t like the uncertainty of looming tariffs, for any business,” Hermanns highlights.

Novo Nordisk’s growth faces new challenges

Novo Nordisk A/S, Europe’s largest company by market capitalisation, has gained just 4% year-to-date, putting it on track for its weakest annual performance in five years.

After exponential growth driven by its blockbuster obesity drug Wegovy, Novo is now facing increased competition as cheaper alternatives enter the market.

“With other companies now offering alternatives, Novo Nordisk’s monopoly position in this market is being eroded,” notes Hermanns. “Despite this, the total market continues to grow, and Novo Nordisk’s market share remains very high.”

Investment implications: A call for diversification

While US tech giants are rewriting the playbook for equity returns, European giants are grappling with structural headwinds and external challenges.

Whether it’s China’s slowdown, tariff risks, or the absence of an AI-fuelled boom, the road ahead seems to be far from smooth.

As the expert notes, the continued outperformance of US equities is reshaping global portfolios, tilting them increasingly towards US assets, but also raising the risk of concentrations.

However, Hermanns advises caution: “Investors should not just focus on U.S. stocks and should consider geographical diversification.”