European shares flat ahead of Nvidia results

The pan-European STOXX 600 closed flat at 561.71 points

European shares closed flat on Wednesday while investors looked ahead to a high-stakes earnings report from chipmaker Nvidia, which could set the direction for trading in artificial intelligence-related stocks.

The pan-European STOXX 600 closed flat at 561.71 points. Most other major regional indexes dropped, with Germany’s DAX down 0.1%, France’s CAC 40 shedding 0.2%, and the UK’s FTSE 100 slipping 0.5%.

The STOXX index slid 1.7% on Tuesday, its biggest one-day drop in more than three months, on worries that the global tech rally, seen for much of the year, had turned into a potential bubble.

Nvidia’s earnings, due after markets close on Wednesday, are seen as a litmus test for the AI-driven rally, and could either stoke or soothe investor worries about lofty valuations.

What the market is trying to do now with Nvidia is get to grips with whether there’s real underlying growth and profitability there, or whether the valuation has blown out and bifurcated from the fundamentals, said Michael Field, chief equity strategist at Morningstar.

AI sentiment isn’t just affecting the U.S. now, it’s affecting everything, he said.

On Wednesday, European aerospace and defence stocks dropped 2.3% to the lowest level since early September on signs of a new U.S.-led push to end the Russia-Ukraine war.

Shares in Rheinmetall, Renk, BAE Systems, Leonardo, Saab were among the biggest losers on the STOXX index, with losses ranging from 4.5% to 7.7%.

Utilities shed 1.4%, while energy sector dropped 0.4%.

Conversely, tech stocks wiped out early losses to gain 0.4%.

Investors are also awaiting the U.S. labour market report, due on Thursday, at a time when U.S. central bank’s policymakers are divided on the central bank’s monetary policy verdict next month.