Strong start to 2Q26 for European capital goods, with resilient demand and the AI capex chain driving order improvement
AI summary card
Strong start to 2Q26 for European capital goods, with resilient demand and the AI capex chain driving order improvement
Among the European multi-industry companies covered by Goldman Sachs, sales have all exceeded expectations so far in 2Q26, while most have beaten expectations for EBITA and margins; orders have also performed better than expected, but free cash flow has generally come under pressure due to elevated inventories.
- Among companies that have reported, 100% exceeded expectations for sales, more than 90% exceeded expectations for EBITA, more than 80% exceeded expectations for margins, and approximately two-thirds exceeded expectations for orders.
- The AI-related ecosystem, including data centers, semiconductors, and utilities, now accounts for more than 40% of Goldman Sachs' Capex Tracker, up from less than 25% three years ago, and is feeding through to organic order growth in the capital goods sector.
- Short-cycle demand has improved further, and more companies in Europe have issued cautiously optimistic guidance; agriculture, marine, rail, utilities, European construction, autos, consumer, and general industrial end markets have shown sequential improvement.
- The main drag came from free cash flow, which was below expectations for most companies as inventories remained elevated, potentially reflecting precautionary stockpiling amid macroeconomic uncertainty.
Report interpretation
Overview
This report is Goldman Sachs' 2Q26 earnings-season heatmap update for its European multi-industry coverage, focusing on the performance of reported capital goods and related industrial companies relative to market consensus. The report notes that, despite rising macroeconomic risks during the quarter, demand remained materially stronger than expected, supported primarily by data center-related activity, while previously weaker end markets such as construction and autos also performed better than expected.
Core views
The core view is that European capital goods and global industrial multi-industry companies have made a strong start to 2Q26: sales, EBITA, margins, and orders have mostly exceeded expectations, with the median order beat relatively strong. The impact of AI-related capex on capital goods demand has become increasingly evident. However, free cash flow was weak, with elevated inventories remaining a source of near-term pressure. At the regional and end-market level, several industries improved sequentially, while only construction in China/Asia was described as a significantly contracting end market.
Analysis framework
The report uses Goldman Sachs' global industrial multi-industry heatmap framework to track year-over-year organic order growth for backlog-driven companies, or year-over-year organic sales growth for other companies, following earnings releases or preliminary commentary, and maps these indicators to signals of sequential acceleration or deceleration across end markets. The report also compares company-reported results with company-compiled consensus to assess beats or misses for orders, sales, adjusted EBITA, margins, and free cash flow.
Methodology notes
Tracking cyclical earnings acceleration/deceleration
Following company earnings releases or preliminary commentary, Goldman Sachs tracks year-over-year organic order growth for backlog-driven companies or year-over-year organic sales growth for other companies, using these measures to assess sequential acceleration or deceleration across different end markets.
Reported companies' performance relative to consensus
The report compares reported companies' performance relative to company-compiled consensus for orders, sales, adjusted EBITA, margins, and free cash flow, and calculates beat percentages, medians, and averages.
Comparison of growth, financial returns, valuation multiples, and composite percentiles
The disclosure appendix explains that Goldman Sachs' factor profile compares individual stocks with the market and industry peers across growth, financial returns, valuation multiples, and composite indicators to provide investment context.
Ranking the probability of becoming an acquisition target
Goldman Sachs assesses the likelihood of covered companies becoming acquisition targets using qualitative and quantitative factors, ranking companies from 1 to 3; Rank 1 represents a higher probability, while Rank 3 represents a lower probability and is generally not included in target prices.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- European capital goods and multi-industry coverage companiesCore assets covered by the report
- Strengths
- Sales, EBITA, margins, and orders were generally stronger than consensus, with signs of improvement in short-cycle demand.
- Weaknesses
- Free cash flow was below expectations for most companies, while inventories remained elevated.
- Comparison
- Reported results were stronger than previously expected by the market given concerns over macroeconomic risks and weak end markets.
- Risks
- Macroeconomic uncertainty, inventory digestion pressure, and the impact of foreign exchange and tariff factors on earnings quality.
- AI-related capex chainPrimary source of demand support
- Strengths
- Data center, semiconductor, and utility-related activity is driving capital goods order growth, with its share of Goldman Sachs' Capex Tracker increasing significantly.
- Weaknesses
- The report does not provide a breakdown of the sustainability of this chain by sub-sector.
- Comparison
- The AI-related ecosystem's share has risen from below 25% three years ago to more than 40%.
- Risks
- If AI capex slows, growth in related capital goods orders could decline.
- Previously weak end markets such as construction and autosSources of marginal improvement
- Strengths
- The report says trends in weak end markets such as construction and autos were slightly better than expected.
- Weaknesses
- Construction in China/Asia remains a significantly contracting end market.
- Comparison
- European construction and autos in the United States, China, and Asia showed sequential improvement, while construction in China/Asia lagged.
- Risks
- Regional divergence and fluctuations in end-market demand could affect the sustainability of order growth.
- Free-cash-flow-sensitive companiesEarnings-quality risk
- Strengths
- Strong sales and profit performance could provide a foundation for subsequent cash-flow improvement.
- Weaknesses
- Free cash flow was below expectations for most companies because inventories remained elevated.
- Comparison
- This contrasts with the broad outperformance in sales, orders, and margins.
- Risks
- If inventories cannot be digested smoothly, working-capital pressure could persist and weaken the quality of earnings delivery.
Key data
- Coverage companies reporting progressApproximately 25%At the end of the first week of the 2Q26 earnings season, approximately one-quarter of Goldman Sachs-covered companies had reported at least sales data.
- Global tracked peers reporting progressApproximately 10%Approximately one-tenth of globally tracked peers had reported at least sales data.
- Sales beat rate100%All covered companies that had reported so far in 2Q26 delivered sales above expectations.
- EBITA beat rate>90%The report indicates that most EBITA beats were primarily driven by foreign exchange and IEEPA tariff relief.
- Margin beat rate>80%The median margin beat was approximately 30 basis points.
- Order beat rateApproximately 2/3The median order beat was approximately 10%, one of the higher levels seen in recent years.
- AI-related ecosystem share of Capex Tracker>40%This was below 25% three years ago; the related ecosystem includes data centers, semiconductors, and utilities.
- Example of average organic order growth for capital goods in 1Q26Approximately 6%The report uses this figure to illustrate the spillover impact of AI-related capex on capital goods order growth.
- Goldman Sachs global equity coverage3,104 stocksThe number of stocks covered globally by Goldman Sachs Global Investment Research and assigned investment ratings as of July 1, 2026.
Impact & implications
The report's implications are broadly positive: demand across the capital goods and industrial chains has not weakened materially despite macroeconomic risks, and the AI capex chain is spreading from data centers, semiconductors, and utilities into broader order performance. For investors, the quality of earnings beats needs to be differentiated: stronger sales and orders indicate resilient demand, but part of the EBITA beat was driven by foreign exchange and tariff factors, while below-expectation free cash flow highlights the need to monitor inventory and working-capital pressures.
Risks
- Macroeconomic risks increased during the quarter and could affect subsequent orders and company guidance.
- Free cash flow was broadly below expectations, and elevated inventories may reflect demand uncertainty and precautionary stockpiling.
- Part of the EBITA outperformance was driven by foreign exchange and IEEPA tariff relief; the underlying operating quality requires further validation.
- Construction end markets in China/Asia remain in significant contraction, and regional and industry divergence could weigh on overall heatmap improvement.
- The reporting sample remains limited, and aggregated trends for some industries may not be fully comparable with the previous quarter.
What to watch
- Whether orders, sales, margins, and free cash flow continue to exceed expectations among the remaining covered companies reporting later in the earnings season.
- The extent to which the AI-related capex chain expands beyond data centers, semiconductors, and utilities.
- Whether inventories decline and free cash flow improves from its current below-expectation level.
- Whether improving European short-cycle demand and cautiously optimistic company guidance translate into sustained order growth.
- Whether slowing end markets such as construction in China/Asia and healthcare continue to weigh on the global industrial heatmap.