Analysis-How US tech pain is European stock markets' gain

By Danilo Masoni and Dhara Ranasinghe

MILAN, Nov 13 (Reuters) - Global tech turmoil, exacerbated by the shock exit this week of Nvidia chief executive, Jensen Huang, may be a boon for Europe's stock markets, in a sign that the region's lack of tech giants is shielding it from the AI sector's upheaval.

For much of the tech rally, Europe's relative lack of mega-cap tech firms was viewed as a disadvantage, but that weakness is turning into a potential tailwind.

As investors assess the fallout for the world's most valuable chipmaker and the broader industry, European equities have outperformed.

The pan-European STOXX 600 hit a record high on Thursday and is set for its biggest weekly jump since June, supported by earnings growth in sectors less directly dependent on the fortunes of the AI trade, such as energy.

While the STOXX 600 is up roughly 2.6% so far this month, the Nasdaq-100 is flat and Japan's Nikkei is down just over 3%.

"The market is broadening and other themes are emerging," said Alberto Conca, chief investment officer at Swiss wealth manager LFG+Zest, speaking before Huang's departure.

"Europe, which is more defensive, could continue to do well."

Still, investors caution that any protection would be relative. While Europe's lower concentration in technology stocks may cushion AI-related turbulence, a broader selloff on Wall Street would likely weigh on global equities.

The result has been a rotation away from some of the market's most crowded AI-linked trades, gripped by questions over valuations, debt-funded spending and the prospect of greater scrutiny following Democrats' midterm electoral sweep.

Over a two-month period, the STOXX is up more than 4%, while the S&P 500 has lost roughly 0.8% and tech-heavy Asian indices in South Korea and Taiwan are down 23% and 9%, respectively.

Strong earnings and better-than-expected economic data are also acting as buffers against the recent bond market turmoil in France sparked by high-debt worries, while sentiment has also improved with the recent fall in energy prices.

While the energy shock unleashed by the US-Israeli war on Iran has lifted profits of energy firms, it has also hurt economic growth given Europe's reliance on energy imports.

Overall, STOXX 600 companies are on track to post quarterly profit growth of 25%, the strongest in four years, LSEG data shows, with energy firms at the forefront.

LESS TECH EXPOSURE

Europe's most direct exposure to the semiconductor and AI supply chain is through companies such as ASML, Siemens Energy, and Infineon.

However, unlike Wall Street and some Asian markets, where a handful of tech heavyweights account for an outsized share of market performance, Europe offers broader exposure to financials, healthcare and energy companies.

The gap is reflected in benchmark composition. Information technology accounts for more than 35% of the MSCI USA Investable Market Index, with Nvidia alone making up around 6.6% of the benchmark. In contrast, the sector carries a weight of just 8.8% in its European counterpart.

Direct beneficiaries of AI-related capital spending account for 8% of MSCI Europe earnings, Morgan Stanley estimates, while banks, which tend to benefit from periods of higher inflation, make up 21% of the earnings pie.

London's FTSE is also relatively less tech-heavy, said analysts, offering an alternative to those seeking to reduce exposure to a turbulent sector.

"Tech has increased in every index across the world and you have to be even more diversified than in the past," said Justin Onuekwusi, CEO, investments, at St. James’s Place in London.

"That means going more into markets like the UK, Europe, where tech is less of a component," he said, adding he has an overweight position in UK equities.

HSBC Private Bank global CIO Willem Sels noted that in dollar terms, the UK market has outperformed the US on a five-year basis.

"It goes to show the value of casting a wider net," he added.

(Reporting by Danilo Masoni in Milan and Dhara Ranasinghe in London; Editing by Elaine Hardcastle)