The air in the US tech sector has grown rather thick with anxiety as investors grapple with a double-edged sword: staggering AI valuations and mounting fears of disruption.
For months, the “Mag Seven” and high-flying software names have carried the market, but recent tremors over capital expenditure and the sustainability of AI-driven growth have left many looking for the exit.
In response, a growing chorus of analysts is urging a rotation into “undervalued” regions like Japan or Europe.
However, Daniel Gerard, senior multi-asset strategist at State Street Global Markets, is sounding the contrarian alarm.
While consensus suggests fleeing to foreign shores, Gerard argues it is far too early to abandon the American growth engine, dismissing the lure of overseas markets as a premature distraction.
Why it’s too early to exit US stocks
Despite concerns surrounding tech stock valuations, Gerard maintains that the fundamental strength of US large-cap growth remains unparalleled.
While many traders are “looking for something else” after a long-running winning streak, the shift toward value or international stocks lacks a solid earnings foundation.
Gerard finds the current market skepticism regarding AI-related spending particularly “puzzling.”
He notes that investors spent years demanding that tech giants increase their capital expenditure to secure future dominance.
Now that these companies have complied, the market seems intent on punishing them.
However, Gerard highlighted a critical distinction in a CNBC interview this morning: this capex is “totally funded out of revenue from other businesses, not debt.”
He predicts that participants are in for a “surprise” when the trade reverses strongly during the next earnings season – suggesting the current dip is a calculated buying opportunity rather than a signal to retreat.
The case against owning European stocks
While Europe and Japan are often touted as perfect diversifiers, Daniel Gerard views the European landscape with significant skepticism, labeling it a “value trap.”
The narrative of a “great rotation” often ignores the harsh reality of the macro data on the ground.
“What are we seeing in Europe? We’re seeing actually a pretty poor growth picture and a pretty, pretty poor earnings picture,” Gerard told CNBC.
Unlike the US tech sector, which boasts resilient margins and robust revenue streams, European stocks are often bogged down by stagnant growth and high interest rate costs that continue to eat away at the bottom line.
For Gerard, moving into these markets now isn’t really a strategic pivot but a move into “companies with poor earnings.”
According to him, the allure of lower price-to-earnings ratios in Europe is a “deceptive siren” song that masks deep-seated structural weaknesses.
When would be the time to pull out of US stocks?
The definitive shift away from US dominance will eventually happen, but according to Gerard, it requires a catalyst that hasn’t yet materialized: the completion of the credit cycle.
He points out that the modern financial landscape is flush with “plenty of liquidity” that defies traditional cyclical patterns, thanks to the rise of private credit and “buy now, pay later” firms.
This “shadow banking system” – combined with commercial banks’ willingness to purchase US Treasuries – has created a cushion that supports high multiples and tight credit spreads.
Before a true rotation can take place, Gerard believes we must see a clear “decline in the credit picture” followed by a documented recovery.
Until that happens – and given the burgeoning strength in US sectors like healthcare – Gerard’s advice remains firm: stay the course in the US large-cap growth space.
The “value” found elsewhere is, for now, a trap for the impatient.
https://invezz.com/news/2026/02/16/european-stocks-called-value-traps-as-ai-fears-rattle-us-markets/
