Citigroup has pulled back from American equities and technology shares worldwide after last week’s artificial intelligence selloff, pivoting instead toward European markets. The move signals deepening unease on Wall Street about regulatory pressure and the towering sums needed to keep the AI expansion alive.
Strategist Beata Manthey led the downgrade, which shifts US stocks and global tech from overweight to neutral while lifting European equities, excluding the UK, to overweight. The decision follows the S&P 500’s steepest weekly loss since April 2025 and a staggering $2.3 trillion single-day wipeout across the Nasdaq 100 last Thursday. Europe’s Stoxx 600, by contrast, edged up 0.2%.
Citi still holds a constructive long-term view on artificial intelligence. Yet Manthey cautioned that positioning on major indices like the Nasdaq could sink further into net-short territory before investors and earnings estimates stabilize. The damage has already rippled past tech, suggesting that risks once dismissed amid AI euphoria now demand reappraisal.
The trigger arrived with last week’s Democratic sweep in the US midterm elections. Investors worry that stricter oversight could delay data center construction, the backbone of AI growth. Financing concerns had been building for months, leaving markets hypersensitive to any threat against the industry’s extraordinary spending trajectory.
Meanwhile, Europe offers something American equities increasingly lack: distance from the AI trade. Industrial firms, banks, and defensive sectors once made European stocks look dull next to American technology giants. That same composition now functions as a buffer.
Goldman Sachs strategists reached a parallel conclusion. AI infrastructure represents roughly 15% of Europe’s Stoxx 600 but about 40% of the S&P 500. The earnings gap proves even sharper. AI-related companies account for under a quarter of the 9% profit growth Goldman projects for Europe in 2027, versus more than two-thirds of expected US earnings growth.
European equities have outperformed American stocks during all eight major AI-driven selloffs since 2023, according to Goldman’s analysis. Citi also notes Europe stands to gain more from falling oil prices, providing additional support without requiring massive capital outlays.
The bank has not abandoned equities entirely. It upgraded healthcare and materials to overweight while blending cyclical and defensive positioning. Targets remain positive for next year, backed by expectations of lower rates, resilient growth, and reduced geopolitical friction.
The real change lies in where Citi wants to deploy capital. American concentration once delivered outsized returns. Now that same concentration exposes US stocks to outsized questions about regulation, financing, and whether AI investment can justify its valuation. Europe need not win the AI race to benefit from that uncertainty. It simply needs to depend less on the outcome.
