Turbulence in the global technology sector, intensified by uncertainty surrounding Jensen Huang’s unexpected departure as CEO of Nvidia, has prompted investors to reallocate capital — a shift that has favored European equities. As funds flowed out of large, AI-exposed US names, European indices have moved into a leadership position and repeatedly set new highs.
The data
The pan-European STOXX 600 index reached a record high on Thursday and recorded its largest weekly gain since June. This month the STOXX 600 has risen by roughly 2.7%, while the US Nasdaq-100 has lost about 2.7% and Japan’s Nikkei has fallen by a little over 3%. Over a two-month horizon the STOXX 600 is up more than 4%, compared with the S&P 500, which is down 0.8%. Technology-heavy South Korean and Taiwanese indices have experienced larger declines, roughly 23% and 9% respectively.
Why investors are rotating
Investors are pulling capital out of the most popular AI stocks amid growing skepticism over stretched valuations and debt-funded investments. The article also notes that following a decisive midterm victory for Democrats, markets expect tougher regulatory scrutiny in the United States, which has further reduced the appeal of AI-centric companies.
Sectors and macro support for Europe
Europe’s relative strength has been supported by sectors that are less dependent on AI, notably energy, financials and healthcare. According to London Stock Exchange Group (LSEG) data, STOXX 600 companies face an expected quarterly profit increase of 25% — the strongest rate in four years. Energy firms have been particular beneficiaries: earlier energy shocks linked to the US–Israel and Iran conflicts boosted profits, and the recent fall in energy prices has improved market sentiment.
Goldman Sachs strategists estimate that every 10% rise in Brent crude reduces European companies’ market capitalisation by about 1%, highlighting the sensitivity to oil prices. Better-than-expected macro data and solid corporate earnings have also underpinned markets, even as French sovereign-debt tensions in the bond market remain a risk.
Market structure: lower tech weight, broader base
European indices’ resilience is reinforced by their structure: they have a much lower weighting to information technology than many US and some Asian benchmarks. The US MSCI index allocates more than 35% to information technology — a share in which Nvidia alone accounts for 6.6% — while the European equivalent assigns just 8.8% to the sector.
Europe’s linkage to the semiconductor and AI supply chain is mainly through companies such as ASML, Siemens Energy and Infineon, which gain more indirectly from the AI cycle. Morgan Stanley estimates that direct beneficiaries of AI investments account for only about 8% of MSCI Europe’s earnings, whereas banks — which can benefit from a higher-inflation environment — generate roughly 21% of total profits.
Implications for investors
Markets less reliant on the technology sector, such as the London FTSE, have become attractive alternatives for risk-reducing investors. Data from HSBC Private Bank shows that, in dollar terms, the UK equity market has outperformed the US over a five-year period, underscoring the value of diversification.
The coverage and cited analyses indicate that the current market rotation reflects not only idiosyncratic problems among tech companies but also differences in index composition and sector exposures that determine which regions and industries benefit most in the present environment.
This article does not constitute investment advice or a recommendation. An AI assistant contributed to the preparation of this piece; the final content was edited and verified by our journalist.
