London: European banks are poised for continued growth in 2026 as investors increasingly embrace the potential of artificial intelligence (AI) to boost earnings and reduce operational costs. Following a remarkable 2025, banks across the continent have seen strong stock rallies, with Societe Generale up 140%, Commerzbank rising 125%, and Barclays gaining nearly 70%. The broader European banking index has surged more than 60% this year, significantly outpacing general market gains.
Analysts point to AI as a key driver of this momentum. With relatively few technology giants in Europe, investors are seeking AI beneficiaries in traditional sectors, and banks have emerged as prime candidates. AI applications in banking from fraud detection to operational efficiency and workforce optimization are helping lenders achieve substantial cost savings. Helen Jewell, Chief Investment Officer at BlackRock, highlighted that while much of AI coverage focuses on revenue growth, European banks are increasingly recognized as “cost winners” benefiting from technology-driven efficiencies.
Despite robust gains, European banks remain undervalued compared to their U.S. peers. Currently trading at roughly 1.17 times their price-to-book value well below their 2007 peak—banks present what some investors see as an attractive opportunity for further upside. UBS has emphasized that AI adoption could provide both near-term valuation boosts and longer-term earnings growth, reinforcing investor confidence.
Global consulting firm McKinsey estimates that AI could contribute up to $340 billion annually to the banking sector, potentially lowering operational costs by 20%. Similarly, Goldman Sachs projects modest cost growth through 2027, with improved efficiency continuing to bolster profitability. These technological gains come alongside solid lending trends in the eurozone, where business and household credit remain strong.
However, experts caution that the AI-driven optimism is not without risk. Authorities including the International Monetary Fund and the Bank of England warn of potential “dot-com-style” exuberance. Banks also face traditional vulnerabilities, including geopolitical tensions, climate-related crises, trade uncertainties, and currency market volatility. Nevertheless, the fusion of cutting-edge AI with established banking infrastructure underscores a transformative moment for Europe’s financial sector, as investors bet on continued innovation to sustain growth and competitiveness.