For the first time in a decade, European equities have broken out of their constantly widening valuation discount range compared to the US. Historically, such breakouts have signaled the beginning of a long-term upward trend where the valuation gap narrows significantly.

Historically, US earnings outgrew the world by 1%. Post-GFC, this widened to 3%. Investors have extrapolated this recent, higher rate as the new normal, pushing the US CAPE ratio to nearly double that of non-US markets. This represents a historically extreme valuation based on a potentially temporary growth advantage.

Contrary to the dominant narrative focused on US tech giants, data shows European banks and a global deep value approach have outperformed the 'Mag 7' over the last one, three, and five years. This highlights the importance of looking beyond popular headlines for actual investment performance.

Europe's investment opportunity in AI lies not in creating foundational technology, but in its adoption. European companies leading in AI adoption are showing significant earnings outperformance and trade at a 27% discount to US equivalents, representing a distinct and undervalued growth angle.

In 2025, US stocks underperformed global peers despite superior earnings growth. Non-US markets saw significant price increases on flat or negative earnings, a divergence that Goldman Sachs Wealth Management believes is unsustainable, reinforcing their long-term US overweight thesis based on earnings fundamentals.

Contrary to the dominant narrative of US market leadership, European equities have actually outperformed their US counterparts when measured in constant currency terms since the last US presidential election. This surprising trend is a fact that most investors may not realize.

Europe's primary AI bull case is not in creating foundational AI but in its large base of "AI adopters." These firms, a quarter of the index, show strong earnings outperformance and trade at a significant 27% discount to US equivalents, presenting a unique investment angle.

Contrary to popular belief, when measured in constant currency, European equities have outperformed their US counterparts since the last US elections. This trend is not widely recognized by investors, setting the stage for a potential re-evaluation of the region.

The top investment idea for the year is European equities, specifically quality stocks. This is based on a favorable combination of accelerating earnings growth, supportive fiscal and monetary policy, and more attractive valuations compared to US markets, particularly when analyzing EPS growth plus dividend yield versus P/E multiples.