European IT Services Recovery Gaining Traction, BofA Indicator Shows

A key BofA Securities indicator for the European IT services sector improved for a third consecutive month in August, returning to neutral territory and signaling that a recovery is gaining momentum after a period of contraction.

Indicator Signals Recovery

The BofA Securities European IT Services Indicator, which had been negative since March, was bolstered by improvements in four of its six components. These included CEO confidence, the European Commission’s economic sentiment indicator, the global earnings revisions ratio, and offshore hiring activity, according to the bank's report.

The improvement was partly offset by a deterioration in EU services purchasing managers’ indexes, while global IT services earnings sentiment remained stable. BofA noted the indicator historically leads average organic revenue growth at major firms including Capgemini, Sopra Steria, and Atos by about three quarters.

Improving Fundamentals and Outlook

The strengthening indicator aligns with a solid second-quarter earnings season that reinforced an improving industry backdrop. Sector-wide organic growth accelerated to 2.7% in the second quarter of 2026, up from 0.8% in the first quarter.

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Several companies, including Alten, Capgemini, Netcompany, and Sopra Steria, reported revenue that surpassed expectations. BofA also highlighted that every company it covers upgraded its guidance, with the notable exception of Atos, which lowered its outlook to negative 5% revenue growth. Management teams cited stronger activity in AI transformation, aerospace, defense, and public-sector spending as key drivers.

Investor Caution Persists

Despite the stronger operating environment, BofA observed that share price reactions to recent earnings were mixed. The bank suggested investors remain cautious about the pace of the spending recovery, the conversion of artificial intelligence investment into meaningful revenue, and the durability of recent margin improvements.

Nevertheless, BofA analysts believe the combination of strengthening leading indicators and improving company fundamentals supports the view that the sector is entering the early stages of a more sustained recovery. The bank forecasts sector organic growth will improve to 2.3% in 2026 from a negative 2.7% in 2025, with further acceleration expected in 2027.