Morgan Stanley analysts are turning bullish on Europe's fourth-quarter earnings season. Their models show a 9% skew toward beats on key metrics, outpacing the U.S. outlook. The bank highlights nine EU stocks poised to outperform, with sectors like banks, semiconductors, and defense showing the strongest momentum.

This shift follows a period where downside expectations dominated. The bank's upgraded MSCI Europe target to 2,600 signals about 8% upside, citing Europe's break from its long-standing valuation discount versus the U.S. and early evidence of AI adoption driving returns across the region.

However, Morgan Stanley cautions that consensus forecasts for 2026 remain too high. Historically, these estimates start optimistic and get revised lower. The bank's top picks, including BARC, SOGN, and ASML, score highly on both quantitative screens and analyst preview data alone.