AI Trade Loses Steam as European Stocks Outpace US Peers in October

European equities edged lower on the final trading day of October, yet the region's shares have recently outperformed their US counterparts as the artificial intelligence trade shows signs of fatigue, prompting a rotation of capital.

The Stoxx Europe 600 Index slipped 0.4%, trimming its monthly gain to roughly 2%. Technology and mining stocks lagged, while healthcare and food and beverage shares led the advance.

European markets once again proved relatively resilient on Friday as a global selloff swept equities. Disappointing results from Amazon and Intel reignited concerns over massive AI spending, sending the Nasdaq 100 sharply lower.

Asian equities also declined, with South Korea's Kospi Index, seen as a barometer of AI trade sentiment, dropping 3.5% as investors reassessed the outlook for technology stocks.

A basket of European AI beneficiaries compiled by UBS fell 4.9%.

The Stoxx Europe 600 Index is on track to outperform the S&P 500 in October, with the latter weighed down by its heavier weighting in technology shares.

Throughout the month, investors shifted toward more defensive sectors within European markets, while trades that had performed strongly earlier in the year, such as banks and basic resources, fell behind.

"European equities are relatively less exposed to the current troubles in the technology sector, which could offer some support to European assets in the near term," said Jai Malhi, senior equity strategist at Vanda Research. "However, investors should remember that Europe faces its own challenges. We believe investor positioning has not yet fully reflected the deeper macroeconomic risks facing the region."

On individual stocks, market attention remained partly focused on corporate earnings. AstraZeneca rose 7.0% as the pharmaceutical company's results beat expectations, driven primarily by its fast-growing oncology business.

Sanofi gained 4.7% after the French drugmaker raised its full-year sales and profit guidance, citing rising demand for its blockbuster skin and asthma treatment Dupixent.