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LONDON/SYDNEY: European stocks fell on Tuesday after a 7% drop in chipmaker Nvidia dragged down US tech companies on Monday, in a sign of nervousness about the artificial intelligence boom.

Stock markets remained close to record highs, however, as investors shifted into less flashy names. Bond yields cooled and Japan’s yen stayed under pressure.

Investors’ attention is being pulled in multiple directions, with snap elections in France starting at the weekend; the first US Presidential debate on Thursday; and the release of the Federal Reserve’s preferred gauge of inflation on Friday.

Yet the focus has been on a 13% selloff in Nvidia shares over the last three days, since the chipmaker rocketed higher to briefly become the world’s biggest company last week. Europe’s benchmark STOXX 600 index slipped 0.3% in early trading, with the STOXX tech index down 1.5%.

Germany’s DAX stock index was 1.2% lower while Britain’s FTSE 100 was flat. A weak earnings update from aeroplane-maker Airbus also weighed on European shares. The drop in Nvidia dragged down the Nasdaq 100 1.1% and the S&P 500 0.5% on Monday.

But the Dow Jones benefitted, rising 0.7%, as investors shifted into companies that are seen as better value in sectors like energy and utilities.

“To put things in context, (Nvidia) shares have still gained 190% on a 12-month view, so it’s no surprise some investors are locking in some profits,” said Derren Nathan, equity researcher at broker Hargreaves Lansdown. Equity indices remain very close to record highs in the US and Europe, despite the recent dip, thanks to excitement over the potentially transformative power of AI and hopes that interest rates will soon be falling.

Nathan said the rotation into other sectors was “a vote of confidence by investors in the health of the broader economy”. US futures were little changed on Tuesday morning in Europe. Japan’s Nikkei 225 stock index climbed 0.95% overnight while China’s CSI 300 fell 0.54%. Bond markets were steady on Tuesday as traders waited for the next catalyst in the form of the US personal consumption expenditures (PCE) inflation report on Friday. The Fed’s favoured measure, PCE inflation is expected to have ticked down to 2.6% year-on-year in May from 2.7% in April.

The yield on the all-important 10-year US Treasury was last down 1 bp at 4.24%. Yields move inversely to prices. It fell the same amount on Monday, helped by San Francisco Fed President Mary Daly saying the central bank must “exhibit care” and that rising unemployment is a risk along with inflation.

Elsewhere, the yen was keeping traders alert for any signs of further intervention from Japanese authorities to prop up the currency as it traded around a two-month low of 160 to the dollar. It hit a record low against the euro of 171.49 on Monday as pressure on the currency mounted thanks to interest rates in Japan that remain far lower than the US and Europe.

“Comments from key Japanese officials at the start of this week have understandably made market participants more wary of the risk of another bout of direct intervention,” said Lee Hardman, currency analyst at Japanese bank MUFG. The dollar index, which measures the currency against six major peers, was last flat at 105.47, down slightly from a two-month high on Friday.

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