AI Bubble Fears Trigger a Surprising Shift to Swiss Stocks
Swiss blue chips lead euro-area peers by almost 8 percentage points in October, the widest gap since March 2020, as the Swiss Market Index (SMI) rises 4.6% while the Euro Stoxx 50 falls 3.2%.
Bloomberg linked the performance gap to three forces pushing investors to cut risk in Europe: rising borrowing costs, growing doubts about the AI trade, and political turmoil in France and Spain.
Investors have favored profitable companies with strong balance sheets, which are less exposed to rising borrowing costs. The SMI has emerged as one of the biggest beneficiaries of this shift.
Three Giants Carry the Swiss Lead
The SMI's three largest companies—Roche, Novartis, and Nestlé—produced the entire October gain. Roche climbed 12%, Novartis added 6.7%, and Nestlé gained 10%. Together, they make up almost half the SMI's value.
Investors like the defensiveness of Swiss stocks and are actively looking for alternatives to the crowded AI trades. Healthcare was the funding sector for the AI trade, and that is reversing now.
AI Selloff and Swiss Rally
The Swiss rally coincided with a global selloff in AI shares, where 20 top AI and chip stocks shed over $1 trillion from October 12 to 15. Investors worried that higher borrowing costs could weigh on AI spending.
Global corporate bond spreads have widened to their highest since May 2025. Bank of America's survey shows managers held their largest tech allocation since August 2020 before the selloff, with Switzerland ranked joint second at a net 16%.
The rally has made Swiss shares pricier, raising questions about how far the gains can continue as investors balance the appeal of defensive stocks against their elevated valuations.
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