European tech companies face mounting forex challenges as dollar weakness and trade tensions strain quarterly earnings outlook
Key Takeaways
- 5% USD/EUR decline hits European tech earnings as foreign exchange volatility creates headwinds for software giants SAP and Sage with 30-50% U.S. revenue exposure
- BofA cuts advisory fees 31% quarter-over-quarter as Trump’s 2025 trade policies and 20% European tariffs double economic uncertainty index since January
- European tech investment drops 48% year-over-year to €5.5 billion in May 2025 despite 66.7% monthly increase, reflecting cautious investor sentiment
Introduction
European financial and technology sectors face mounting pressure from foreign exchange volatility and escalating tariff risks that threaten second-quarter earnings across major markets. BofA Securities warns that currency headwinds and trade policy uncertainty are creating significant challenges for European companies with substantial U.S. revenue exposure.
The USD/EUR exchange rate decline of 5% year-over-year marks a sharp reversal from the 2% increase recorded in the first quarter. This currency shift directly impacts software companies like SAP and Sage, which generate 30-50% of their revenue from American markets.
Key Developments
BofA Securities has revised its earnings forecasts downward for major European software companies due to foreign exchange pressures. The bank trimmed SAP’s 2025 revenue and earnings per share estimates by 0.3% each, while Sage faces steeper cuts of 0.7% for revenue and 0.8% for EPS.
President Trump’s 2025 trade policies have introduced additional complexity through proposed 20% tariffs on European imports and anticipated retaliatory measures from China. The Economic Policy Uncertainty Index has doubled since January 2025, creating a climate that directly stifles corporate deal-making activity.
The software sector maintains relative resilience with organic growth projections rising slightly to 9.9% from 9.5% in the first quarter. However, even strong performers like Dassault Systèmes and Planisware experience estimate downgrades due to foreign exchange effects.
Market Impact
Trading activity shows mixed results across European financial markets. BofA’s Q1 trading revenue surged 9% year-over-year to $5.66 billion, driven by record equity trading gains from tariff-related volatility.
The payments sector faces particular pressure with Q2 growth forecasts slowing to 4.7% from 5.3% in the previous quarter. Adyen anticipates net revenue growth of 18.6% in Q2, falling short of market expectations despite constant currency adjustments of 20.7%.
Worldline experiences severe valuation pressure with BofA slashing its price objective from €7 to €4 due to concerns over high-risk merchant exposure and heightened macroeconomic sensitivity. The IT services sector confronts a predicted 5% organic revenue decline, consistent with last quarter’s performance.
Strategic Insights
European technology investment patterns reveal a fundamental shift toward disciplined capital deployment and proven business models. Investment activity totaled €5.5 billion across 341 deals in May 2025, representing a 66.7% monthly increase but remaining 48% below May 2024 levels.
Investors increasingly favor leaner funding rounds and companies that can define or dominate their market categories. This strategic pivot makes fundraising more challenging for early-stage companies while rewarding established players with clear competitive advantages.
The convergence of artificial intelligence, biotechnology, and materials science drives integrated solutions addressing industrial sustainability, health, and energy efficiency challenges. These developments position European companies for potential real-world impact delivery within the next three to five years.
Expert Opinions and Data
According to Investing.com, European technology spending projects 5% growth in 2025, reaching €1.4 trillion with software and IT services accounting for 75% of total expenditure. Financial services, government, and media sectors represent over 40% of this technology investment.
BofA’s latest fund manager survey indicates unusually light sector positioning with a 14% net overweight reported in June. Across the bank’s coverage universe, 2025 revenue estimates face marginal reductions of 0.2% for software, 1.3% for IT services, and 0.2% for payments.
Enhanced Geothermal Systems emerge as a promising solution for data center energy requirements, with projections suggesting substantial market penetration by the early 2030s. Tech giants Amazon, Microsoft, and Meta drive this demand as U.S. data centers project electricity consumption growth reaching 12% of total national energy use by 2028.
Conclusion
European financial and technology sectors navigate a complex landscape of foreign exchange volatility and trade policy uncertainty that reshapes investment strategies and earnings expectations. Currency headwinds create immediate pressure on companies with significant U.S. revenue exposure, while tariff policies introduce longer-term structural challenges.
The sector’s fundamentals remain robust despite macroeconomic headwinds, supported by disciplined investment approaches and strategic innovation in emerging technologies. This environment favors established companies with diversified revenue streams and clear competitive positioning over early-stage ventures seeking initial market validation.
