AI-driven differentiation propels Europe's performance to surpass that of the United States

Investing.com - Barclays believes that as extreme AI-driven divergence reshapes global stock market leadership, Europe is increasingly outperforming the U.S., a trend that favors “old economy” sectors and heavy asset business models.

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In a report, analyst Emmanuel Cau wrote, “Extreme AI-led divergence makes momentum strategies prone to sharp reversals,” even as global stock markets continue to rise.

Cau stated that the market is still dominated by a divergence between sectors considered vulnerable to AI disruption and those viewed as more defensive.

He wrote, “The divergence between ‘old economy’ sectors and the ‘new economy’ sectors more susceptible to AI disruption continues to widen,” but he added that this gap “may already be starting to appear excessive.”

Barclays highlighted Europe’s advantage, attributed to what it calls the “HALO effect (heavy assets, low淘汰率).”

According to the bank, AI-driven divergence “largely explains the ongoing rotation from the U.S. stock market to other regions,” with European markets reaching new highs while the S&P 500 and Nasdaq struggle.

Barclays states that the EU and UK markets, due to their tilt toward tangible assets, are “benefiting fully” from this rotation.

Concerns over the U.S. tech business model, AI’s threat to white-collar jobs, and private credit exposure related to software are prompting investors to “reduce exposure to the tech-dominated U.S. market.” Cau pointed out, “Even Nvidia’s strong performance this week hasn’t reversed this trend.”

Barclays added that valuation convergence is currently driving most of the rotation, raising what it calls a key question: “Will this valuation convergence be validated by earnings convergence?”

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