Why European small and mid-caps are entering a new investment era

Bellevue Asset Management sees a changing European investment landscape in which AI, energy security, infrastructure and industrial reshoring could create opportunities well beyond the technology sector.

Europe’s small and mid-cap companies are entering a different investment environment, according to Bellevue Asset Management. In a market commentary published on 24 September, Birgitte Olsen, Head of Entrepreneur Investments at Bellevue Asset Management, argues that the combination of improving earnings, resilient economic activity and a new investment cycle could provide a supportive backdrop for European smaller companies.

Bellevue’s assessment is notable because its argument extends well beyond the traditional technology narrative surrounding artificial intelligence. The investment manager believes the increasing investment required to support AI, energy security, infrastructure and the reshaping of supply chains could create opportunities across a much broader section of the European economy.

A more supportive earnings environment – Bellevue notes that European small and mid-caps had gained around 8% from the beginning of 2026 to 20 September. The firm’s assessment is that the performance has been supported by improving corporate fundamentals rather than simply by a shift in investor sentiment.

According to Bellevue, second-quarter results demonstrated healthy margins and solid earnings growth. The investment manager says earnings expectations for European companies had been revised upwards by around 6% during the year, with growth of 14% expected for 2026. Bellevue also points to improving manufacturing purchasing managers’ indices and resilient economic activity. For the firm, those developments provide a potentially favourable backdrop for the third-quarter reporting season, particularly for smaller and mid-sized companies.

The capital expenditure supercycle The central theme of Bellevue’s argument is the emergence of what it describes as a long-term investment cycle. AI is one component, but the investment manager places it alongside energy security and geopolitical realignment. The resulting capital expenditure has implications that extend beyond the companies directly involved in developing AI technologies.

AI requires significant amounts of electricity, data-centre capacity, networking infrastructure and other physical assets. At the same time, Europe is seeking greater energy security and reshoring of production capacity. Bellevue argues that smaller specialist companies can benefit from these developments because many occupy highly focused positions within industrial supply chains.That creates a different way of viewing the AI investment theme. Rather than concentrating exclusively on technology companies, investors can potentially consider the businesses supplying the infrastructure that allows technological change to take place.

Industrial companies at the centre – Industrials represent around 30% of the European small- and mid-cap universe, according to Bellevue. The firm sees several structural trends supporting this part of the market, including electrification, AI infrastructure, energy efficiency, industrial automation and the reshoring of manufacturing capacity. These themes can create demand for companies operating in highly specialised areas.

Bellevue cites Andritz, Nexans and Nordex as examples of businesses benefiting from demand in areas including hydropower, cable systems and onshore wind energy. The broader argument is that companies do not necessarily need to be household names to participate in major investment trends. A specialist business providing a particular component, system or service can benefit from increasing investment across an entire supply chain.

A different market regime – Bellevue also believes the investment environment itself has changed. Its commentary describes a market regime characterised by higher real interest rates, greater volatility and increased government intervention. At the same time, reshoring and infrastructure investment are increasing capital intensity and financing requirements. For smaller companies, this creates both opportunities and challenges.

Companies with strong competitive positions, pricing power and exposure to structural growth can potentially benefit from increased investment. But higher financing costs and more volatile markets also increase the importance of company selection. Bellevue therefore places particular emphasis on active stock selection, diversification and valuation discipline.

Looking beyond market concentration – Another feature of Bellevue’s analysis is its concern about concentration. The investment manager argues that the scale of investment surrounding the AI ecosystem has created areas of the market where valuations and expectations may become increasingly concentrated.

Its response is not to dismiss AI, but to widen the investment lens. European industrial and technology companies, alongside parts of the traditional economy, may benefit from the same structural forces driving investment in AI and infrastructure. This is where Bellevue sees the potential importance of smaller companies. The investment universe is extensive, with the firm stating that its European small- and mid-cap investment universe contains more than 2,000 companies, many of which receive relatively limited analyst coverage. That creates scope for an investment approach based on identifying individual businesses rather than simply following broad market themes.

The Bellevue approach Bellevue’s own investment strategy is focused on companies trading at what it considers a significant discount to estimated intrinsic value.

The approach can encompass value, growth and GARP companies, provided the firm’s assessment of the underlying fundamentals supports the valuation. For Bellevue, that philosophy is particularly relevant in an environment where structural investment themes are creating winners across different parts of the economy. The firm’s September commentary highlights the possibility that Europe’s next investment phase may therefore be broader than the headline technology story suggests.

A wider European opportunity set Bellevue’s argument ultimately comes down to the relationship between structural change and the companies that enable it. AI investment, energy security, electrification, infrastructure and reshoring are often discussed as separate themes. Bellevue sees them as interconnected sources of capital expenditure that could support a wide range of European businesses. For smaller and mid-sized companies, that creates the possibility of participating in major economic trends without necessarily being at the centre of the most crowded market narratives.

The investment manager’s September outlook therefore presents European small and mid-caps as a segment shaped by a combination of improving earnings and long-term structural investment. For investors considering the next phase of European markets, Bellevue’s view suggests that some of the most important beneficiaries of technological and industrial transformation may be found not only among the largest companies, but among the specialist businesses supplying the infrastructure behind the change.

Click here to read Bellevue Asset Management’s full report by by Birgitte Olsen: Europe’s small & mid caps: Opportunities remain intact in a new investment era, 24 September 2026