• NASDAQ 100, AI mega-caps deep in the red after several bruising sessions
• European equities provide diversification play, large sell-downs attractive for greater exposure

The last few weeks have been a bruising time for US tech stocks, particular equity stories based on artificial intelligence (AI).

Companies that have bet on the transformative power of AI have been facing increased scrutiny over the sustainability of their long-term business models. This global rotation in equities has seen several US tech names fall into the red.

On the other hand, increasing scrutiny of AI pitches has benefitted European stocks as investors seek portfolio diversity. This in turn has helped the environment for sell-downs.

Last week, global markets continued to shed exposure to US AI-linked equities in a sell-off that is starting to look like it could be the start of a market correction.

While strong earnings from chip giants like Nvidia and some of the listed hyperscalers could help reinvigorate this tech-fuelled bull market, fears that toppy markets may now be on the way down will persist unless we see some pretty sizeable earnings beats.

Headline volatility indices remain manageable, which shows each session of selling has not been too severe.

But several days of losses are leading to a death-by-a-thousand-cuts scenario for headline indices, and single stock performance in some of the individual US AI mega-caps has also been more severe

The Nasdaq 100 index has fallen by around 6.7% from its most recent high set at the start of June, while at the same time the STOXX 600 has risen by 2.6%. The US Dow Jones Industrial Average has also risen by around 1.7% over the period, showing investor interest in diversifying away from AI-linked names.

At an individual level the sell-off is clearer, Nvidia has fallen by 14% from its last high set in May and Microsoft is 27% below its last peak in October 2025.

Less AI-exposed tech has also flourished. Apple, for example, has risen by over 20% since the end of June, showing that investors may be retreating to the cash-generative comfort of one of the least AI-exposed Mag-7 names.

The capital pullback from AI stocks has hit two big newly listed companies in the sector this year, with both SpaceX and Cerebras Systems falling below their IPO prices last week. The former has fallen 39% from its post-IPO high.

“The trading flows we are seeing show a massive rotation and a reallocation of risk away from the AI trade into industrials and cyclicals; investors are getting more defensively positioned,” noted a banker.

Europe sees greater investor interest

Investors may be rotating, but they are not fleeing the market yet, even with the shadow of renewed hostilities between the US and Iran raising expectations of a rate hike by the US Federal by the end of the year.

As the headline index numbers show, Europe seems to have been a particular beneficiary in this rotation. The continent has lagged the US in the AI build-out and therefore offers investors a greater diversification away from those names.

While US bank stocks for example are not directly exposed to the pressures around AI bubbles, much of their deal pipelines are directly linked to the health of the sector, as attested to by the sizeable banking fees around SpaceX.

European banks though are far less exposed to this, simply because they have fewer clients whose businesses depend on continued AI growth. European FIG equities, therefore, might seem more compelling as a hedge against tech overexuberance than Wall Street giants.

A second banker noted that while the bid for diversity away from AI was a good sign the equity capital markets are still functioning well for other sectors, his bank had a huge pipeline of business directly linked to the AI buildout.

“We would hope this market, and demand for AI, holds until at least next year,” he said. “Just from the perspective of our deal pipe.”

All market participants speaking to ECM Pulse this week noted that they had seen an increase in institutional reverse enquiries for European stocks since the beginning of this cycle of AI rotation.

A third banker highlighted healthcare, European consumer businesses and European FIG stocks as particularly interesting.

This increase in demand is leading to some sizeable trades in a variety of names that have not been widely flagged as expected sell-downs.

This was evident in the market last week when Thrivest Holdings, an investment vehicle owned by shipping magnates Dimitris Bakos, Yiannis Kaimenakis, and Alexandros Exarchou, sold a EUR 300m stake in Greece’s CrediaBank.

While EUR 300m does not look particularly large on deal size alone, the stake represented 16.7% of a company where the total float pre-deal was around 30%. The trade was engineered by a single new investor seeking exposure to the business, as reported last week.

The third banker noted that in cases like European bank stocks, investors are increasingly looking for creative ways to gain exposure to new names.

Given the complex web of state-owned financial institutions across Europe, this could lead investors to look more closely at markets such as Greece for greater equity exposure.

Alongside the Crediabank trade, Canadian pension fund CPPIB sold the remainder of its holding in French workplace supplies business Elis, disposing of 8.3% of the business to raise just under EUR 475m.

Investors have previous told this column of a desire to be more proactive in reversing into possible block targets to engineer deals, and the third banker noted that large institutions have increasingly more power to drive deal flow with a more activist attitude towards reverse enquiries.

The more investors seek rotation out of US AI names the stronger the bid for Europe, for the moment at least.

A true bubble-bursting moment and a dramatic increase in volatility could shut markets for a time, but while volatility indices remain manageable and the selling in tech names remains a rotation rather than a bearish sell-off, European blocks will continue to have serious appeal.