Bank of America Securities reported that its European IT Services Indicator improved in August, returning to broadly neutral readings after several months in negative territory that began in March. The broker said the uptick was driven by gains in four of the gauge's six components.
The four components that strengthened were CEO confidence in the outlook for the economy one year ahead, the European Commission's economic sentiment indicator, the global earnings revisions ratio and offshore hiring activity. BofA noted that this pattern of improvement in four components matched the July reading and followed a prior month in June when five components improved.
Some of the positive movement was partially offset by declines in EU services purchasing managers' indexes, the broker said, while global IT services earnings sentiment held steady rather than improving further.
Historical link to company growth
BofA highlighted that the indicator has historically led the average organic revenue growth of Capgemini, Sopra Steria and Atos by approximately three quarters. The broker pointed to solid second-quarter 2026 earnings across the European IT services sector as reinforcing the improving backdrop.
Sector-level organic growth accelerated to 2.7% in Q2 2026, up from 0.8% in Q1 2026, according to BofA's assessment. Several companies reported results above expectations: Alten, Capgemini, Netcompany and Sopra Steria each posted revenue figures that beat forecasts. BofA said that, with the exception of Atos, every company it covers upgraded guidance following results.
Atos diverged from that trend, lowering its outlook to negative 5% revenue growth, compared with its previous guidance range of negative 1% to negative 5%.
Drivers and vertical trends
Company management teams repeatedly cited increased activity in AI transformation projects, data modernisation efforts, and stronger spending in aerospace, defence and public-sector engagements. BofA noted that travel technology remained the weakest vertical, though it also recorded improving trends through June and July.
Market reaction and analyst view
Despite the improvement in operating conditions, share-price responses to the earnings season were mixed, the broker said. Investors remained cautious about the pace at which overall spending will recover, the extent to which AI-related investment will translate into meaningful revenue growth, and whether margin improvements observed by companies are sustainable.
BofA concluded that the combination of strengthening leading indicators, firmer company fundamentals and more constructive management commentary supports its view that the sector is in the early stages of a more sustained recovery. The broker expects organic growth to rebound to 2.3% in 2026, up from negative 2.7% in 2025, with further acceleration anticipated in 2027.
Key points
- The European IT Services Indicator moved back to broadly neutral in August as four of six components improved.
- Q2 2026 organic growth for the sector accelerated to 2.7% from 0.8% in Q1 2026, with several firms reporting revenues above expectations.
- Management commentary points to stronger demand in AI transformation, data modernisation, aerospace, defence and public sector work; travel technology remained the weakest vertical.
Risks and uncertainties
- EU services purchasing managers' indexes deteriorated in August, which could weigh on short-term services activity.
- Investor caution about the pace of the spending recovery and the translation of AI investment into revenue suggests market sensitivity to execution risks.
- The durability of margin improvements is uncertain, leaving profitability upside vulnerable to changing cost or pricing dynamics.