The exodus from American markets coincides with a renewed appetite for European assets. A net 35% of managers are now overweight European stocks, while roughly 85% of investors expect the region to outperform its U.S. peers over the next year. This sentiment is reflected in the currency markets, where holdings in the euro reached a record high this month.

The AI Capex Crisis

The pivot is largely driven by a cooling enthusiasm for the artificial intelligence narrative. Investors are increasingly wary of an "AI equity bubble," with a quarter of managers citing it as the market's biggest tail risk. Gerry Fowler, head of European equity strategy at UBS, noted that capital expenditures at firms like Alphabet and Meta are rising not because of accelerated development, but due to massive inflation within the AI supply chain, particularly regarding energy and memory costs.

Market performance data underscores this divergence. So far in 2026, the Stoxx 600 index has gained 4.45%, starkly contrasting a 0.15% dip in the S&P 500 and a 3% slide for the Nasdaq. While U.S. firms grapple with infrastructure costs, several European sectors are positioned to capture the upside of the AI build-out:

• Hardware and energy suppliers like Siemens and ASML.
• Financial institutions and healthcare providers, which remain top sector picks.
• Retailers utilizing AI to drive internal efficiencies.

Craig Cameron of Franklin Templeton suggests that Europe has reached a structural turning point, noting that his firm is actively limiting exposure to the U.S. market. As the cost of building AI capacity continues to squeeze margins in California, the relative value and stability of European banking and healthcare sectors are proving more attractive to global capital.