European shares drop as AI spending worries hit tech; though best month since June in sight

European Stocks Slide on AI Spending Jitters; Markets Eye Best Month Since June

By Avinash P

Market Performance and Sector Highlights

Oct 30 (Reuters) - European shares inched lower on Friday as technology stocks came under pressure from renewed concerns over rising AI investment costs, although the benchmark index was still on track for its best month since June on strong corporate earnings.

The pan-European STOXX 600 index fell 0.29% to 647.23 points by 0929 GMT but was set to post both weekly and monthly gains.

Technology Sector Under Pressure

Technology stocks led declines, with the sector index down 2%, after earnings from Amazon and Intel reignited concerns about the sustainability of heavy AI-related spending and the returns it can generate, echoing concerns that have rattled markets several times this year.

Analyst Insights on AI Spending

"The market is trying to wrestle with the equation about a huge amount of CapEx that's being spent relative to the timeline of a return on investment. And at the moment, they don't have an answer to that," said Michael Hewson, chief analyst at MCH Market Insights.

Key Technology Movers

Sector heavyweight ASML fell 5%, while STMicroelectronics, BESI and Infineon fell between 3.3% and 4.8%.

Chip stocks Soitec and Aixtron fell 5.7% and 3.6%, respectively.

Political and Economic Influences

Political unrest in France also weighed on sentiment this month, as the country faces mounting pressure from rising living costs and elevated government debt, driving French bond yields to multi-year highs.

Separately, data showed French consumer prices rose more than expected in October, recording the highest inflation rate since December 2023.

Corporate Earnings and Market Sentiment

Still, robust earnings from the likes of ASML, Shell and Airbus reinforced confidence in the health of European corporates and lifted investor sentiment.

Blue-Chip Performance

That strength is reflected in the wider numbers, with European blue-chips heading for their second-best quarterly earnings in four years, LSEG I/B/E/S data showed.

Notable Stock Movers

Universal Music Group jumped 11.2%, topping the STOXX 600, after posting a pick-up in subscription streaming revenue in the third quarter. The media sector rose 2.5%, the most among individual sectors.

BP rose marginally after posting third-quarter net income ahead of expectations, while German sportswear maker Puma advanced 6.9% after quarterly sales beat.

Sanofi gained 5.4% after the French pharmaceutical firm reported third-quarter results ahead of analyst expectations and lifted its outlook.

Among other movers, Bayer gained 4% after winning a trial on Thursday over claims by three women that its Roundup weedkiller caused their cancer.

Upcoming Economic Data

Investors also awaited third-quarter euro zone gross domestic product figures later in the day.

(Reporting by Avinash P in Bengaluru; Editing by Subhranshu Sahu and Vijay Kishore)