European shares stumble at end of best month since June on AI worries

By Avinash P and Niket Nishant

Oct 30 (Reuters) - European shares dropped on Friday, hammered by a global tech selloff that shaved billions off the market values of some chip heavyweights, ending a largely strong month on a sour note.

The pan-European STOXX 600 index closed 0.36% lower at 646.75 points, despite recording its best month since June.

Results from Amazon and Intel in the US rekindled concerns about the high costs of building out AI infrastructure and prompted a pullback from technology names worldwide.

"The message from investors is becoming clearer: strong AI demand is no longer enough on its own," Daniela Hathorn, senior market analyst at Capital.com, said.

The European technology sector index fell 2.75% for its worst day since July 7 and led sectoral declines. AT&S, Soitec and Technoprobe led losses on the STOXX 600, with declines ranging from 9% to 13%.

Robust earnings in Europe this quarter have offered some support to stocks, but the drop on Friday shows how quickly bullishness can evaporate if global sentiment shifts.

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

GROWTH DEFIES HEADWINDS

Separately, data showed the euro zone economy grew faster than predicted last quarter, displaying exceptional resilience to headwinds from expensive energy, even as surging borrowing costs and rapid inflation cloud the outlook.

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

Investors are already grappling with political unrest in the euro zone's second-largest economy, at a time when the country faces mounting pressure from elevated government debt, driving French bond yields to multi-year highs.

Universal Music Group jumped 7.89%, topping the STOXX 600, after posting a pick-up in subscription streaming revenue in the third quarter. The media sector rose 1.63%.

BP rose marginally after posting third-quarter net income ahead of expectations, while German sportswear maker Puma advanced 5.59% after a quarterly sales beat.

Sanofi gained 4.71% after the French pharmaceutical firm reported third-quarter results ahead of analyst expectations and lifted its outlook.

Among other movers, Bayer gained 5.46% after winning a trial on Thursday over claims by three women that its Roundup weedkiller caused their cancer.

(Reporting by Avinash P and Niket Nishant in Bengaluru; Editing by Subhranshu Sahu, Vijay Kishore and Andrew Heavens)