European Equity Markets Plunge as AI Valuation Fears Rise

The retreat in European markets came as part of a broader global slipU.S. stocks reversed course sharply after an initial rally tied to Nvidia earnings, fueling renewed doubts about the durability of the AI investment theme.According to the Guardian's live coverage, global markets were on track for their worst week since April, with Asian and European markets tumbling on higher volatility and fading liquidity.

In London, the FTSE 100 and FTSE 250 indices both headed toward sharp weekly losses as technology valuations and concerns about Federal Reserve policy weighed heavily.The FTSE 100 slipped 0.4% and the FTSE 250 dropped 0.6% in intraday trading, as defense and aerospace stocks also fell sharply amid signs of possible progress toward ending the war in Ukraine.

Across Asia-Pacific, the MSCI Asia-Pacific Index, excluding Japan, fell around 2.5 percent, Japan's Nikkei declined 2.4 percent, and South Korea's Kospi slid over 3 percent.Ripple effects from the U.S. tech sector rout and global bond yield trends continued to unsettle markets, leaving investors increasingly wary and risk-averse.

Analysts are pointing to the valuations of technology and AI-linked companies as a central concern in the current market pullback.Reuters noted that the European Technology Stocks Index declined about 2.6 percent, with Schneider Electric and Siemens Energy among the steepest fallers.In commentary from The Guardian, one strategist described the pace of the decline by saying shares were now falling faster than wickets.

The FTSE 100's fall to a one-month low was led by technology and defense stocks, including Polar Capital and Babcock.Major investment firms are voicing caution.

UBS multi-asset strategist Anthi Savali said she preferred that investors were now asking questions rather than ignoring risk, but she emphasized that hopes remained the current episode might be temporary.Behind the headlines, there is concern that some firms may have over-invested in AI infrastructure, raising questions about whether earnings growth can keep up with the large capital expenditures.

As equity markets declined, investors increasingly moved into safer assets.Reuters reported that Eurozone government bond yields fell, with the German 10-year bond yield dropping to approximately 2.68%, as investors sought refuge from stock market volatility.Meanwhile, global equity funds recorded net inflows for a ninth consecutive week, indicating some investors still believe in the long-term appeal of equities, despite current turbulence.

Some strategists see the current correction as a necessary pause.According to Reuters, UBS's CIO Mark Hayfeld said AI remains a key driver of equity markets, citing rising capital expenditures and faster adoption of technology.others remain more cautious.

Commentators in The Guardian suggested the sell-off may mark the start of a multi-year consolidation rather than a brief correction.Looking ahead, focus will turn to upcoming interest rate decisions, major corporate earnings, especially among technology and AI-linked companies, and further macroeconomic data.These will be critical in determining whether market sentiment stabilizes or whether higher valuations and stretched expectations lead to further downside.