Citi: Why European Equities Still Have Room to Run on Cheaper AI Bets

Backing conviction with a bullish target and a stock pick

The bank turned its thesis into a hard number in December 2025, setting a 2026 year-end target of 640 for the STOXX 600, implying a roughly 10.5% potential upside . The target is built on expectations for a cyclical pickup, stronger fiscal support, and the lagged benefits of monetary easing. Citi’s strategists expect earnings per share growth to recover after a flat 2025 pressured by tariffs and currency headwinds .

That conviction is also visible in specific stock calls. On May 1, 2026, Citi analyst Andrew Gardiner raised the price target for Aixtron, a German semiconductor equipment maker, from €32 to €55—a 72% increase—while maintaining a Buy rating . The upgrade reflects surging demand for the company’s deposition equipment, which is critical for producing the compound semiconductors used in AI, optoelectronics, and power applications. By late May, Aixtron's shares had more than tripled in 2026, hitting their highest level since January 2001 .

The geopolitical tailwind: a record run fueled by peace

The STOXX 600’s push to an all-time high of 637.18 on June 15, 2026, wasn't just about earnings. It was fueled by a powerful relief rally after the U.S. and Iran reached a preliminary peace agreement that would reopen the Strait of Hormuz and end the three-month Middle East war . The deal, set to be signed on Friday, June 19, sent Brent crude prices down sharply, lowering a key cost pressure for European economies and lifting risk sentiment across most sectors .

This rally was the culmination of weeks of geopolitical repricing. Earlier, in April, a two-week U.S.-Iran ceasefire had sparked the STOXX 600’s biggest single-day gain since March 2022, with travel, industrial, and bank stocks leading the advance . The index’s year-to-date gain reached approximately 7.6% as it finally recouped all the losses sustained after the war began in late February .

But the rally’s pace may moderate

Despite the bullish target, Citi’s messaging hasn’t been uniformly optimistic. Strategist Beata Manthey cautioned in October 2025 that the best of the rally might be over, with volatility from China and earnings season likely to cap immediate upside. At that time, Citi’s target of 570 implied a more modest 3% gain .

The broader analyst consensus also remains more conservative. In May 2025, the average forecast from 20 strategists polled by Bloomberg placed the STOXX 600 at just 554 by year-end .

And then there’s the geopolitical wildcard. The US-Iran peace deal is preliminary and unsigned. Multiple sources emphasize that the proposed framework—while promising to restore energy shipments, halt multi-front fighting, and reshape alliances—is far from a done deal . Any breakdown in talks would likely unravel the geopolitical risk premium that has powered the index to new highs. Investors betting on a continuation of the rally are ultimately betting that peace will hold and that Europe’s companies can turn the promise of physical AI into profit.