Betting Against the Recession: Why European Industrials and Tech Are the Contrarian Plays of 2025

The U.S. economy is teetering on the edge of a recession, with J.P. Morgan now assigning a 60% probability of a downturn by late 2025. Trade wars, sky-high tariffs, and stubborn inflation are converging into a perfect storm of macroeconomic headwinds. For European equity markets, the fallout could be severe: slumping U.S. demand, supply chain disruptions, and a Fed-induced liquidity crunch loom large. Yet within this gloomy landscape, a subset of European industrial and tech firms is emerging as contrarian darlings—companies with resilient balance sheets, low U.S. revenue exposure, and sector tailwinds that could make them recession-proof.

Why Europe's Industrials and Tech Are Built to Outlast

The conventional wisdom holds that a U.S. recession will drag down European equities. But not all companies are equally exposed. The key to spotting winners lies in three factors:
1. Geographic Diversification: Firms with minimal U.S. revenue (<30% of total) and strong ties to faster-growing regions like Asia and emerging markets.
2. Structural Tailwinds: Sectors like semiconductor equipment and industrial software, which benefit from secular trends in digitization and automation.
3. Operational Excellence: Companies with 10+ percentage points of EBIT margin superiority over peers, thanks to cost discipline and supply chain agility.

Take Solutions30 SE, a European industrial conglomerate with 0% U.S. revenue exposure. Its Q1 2025 results highlight the strength of its export-driven model: revenue rose 8% year-over-year in Europe's core markets, while its EBIT margin held steady at 11.9%—well above the sector average. The firm's focus on industrial software and automation tools positions it to capitalize on Europe's push to modernize manufacturing.

The Case for Tech: Digitalization as a Hedge Against Recession

The tech sector is often seen as cyclical, but certain niches are recession-resistant. Semiconductor equipment manufacturers, for instance, are beneficiaries of a global race to secure advanced chip production. European firms like ASM International (ASMI) and Astronics (ATRO) are leaders in this space, with 85% of revenue derived from Asia and Europe. Even as U.S. demand wanes, their clients in China and Germany are doubling down on investments to reduce reliance on American supply chains.

Meanwhile, industrial software firms are riding the AI wave. Companies like SAP (SAP) and Siemens (SIE) are embedding AI into manufacturing workflows, boosting productivity and reducing costs for clients—a critical edge in a slowing economy.

The Contrarian Play: Sustainability as a Safety Net

Sustainability isn't just a buzzword—it's a valuation multiplier. European companies with Scope 3 emissions reporting and Science-Based Targets (SBTi) enjoy a 17% premium over laggards. Vestas Wind Systems (VWS) exemplifies this: its focus on offshore wind technology has insulated it from energy price volatility, with margins expanding even as European electricity costs surged 145% since 2017.

Investors should also prioritize firms with low-carbon business models. The European Central Bank notes that green firms enjoy a 37% lower weighted average cost of capital (WACC) than peers—a critical advantage in a rising-rate environment.

Navigating the Risks: A Defensive, Growth-Oriented Portfolio

To mitigate U.S. recession risks, focus on three pillars:
1. Export Powerhouses: Firms like Solutions30 SE and KION Group (KDG) with <10% U.S. revenue and exposure to Asia's growth.
2. Tech Infrastructure: Semiconductor and software leaders (ASMI, SAP) with pricing power and secular tailwinds.
3. Green Champions: Vestas and NextEra Energy Europe (NEE) for their WACC advantages and demand resilience.

The Bottom Line: Buy the Dip, Bet on Resilience

The market is pricing in a U.S. recession—now is the time to buy the dip in European industrials and tech. With 60% of executives expecting moderate-to-strong growth over the next three years, and 10+ percentage points of margin superiority among top performers, this is a sector primed to outperform.

The contrarian opportunity is clear: while the world worries about a U.S. slowdown, these European firms are building moats with exports, tech, and sustainability. For investors willing to look past the headlines, the rewards could be historic.

Act now—before the next wave of outperformance lifts these stocks to new heights.

Data sources: J.P. Morgan Research, European Central Bank, Solutions30 SE Q1 2025 report, and sector analysis by Bloomberg Intelligence.