In Europe, investors are leaving the AI sector for healthcare. Which stocks are on the upside?

The securities of European makers of weight-loss drugs rose sharply this week as investors began rotating capital out of artificial intelligence-related tech stocks and into the health care sector, Bloomberg wrote.

For example, shares of Denmark's Zealand Pharma jumped by 20.3% over five trading days in Copenhagen, showing the best weekly result since March 2024 and outperforming the pan-European Stoxx 600 index. Novo Nordisk, which makes diabetes and overweight drugs Ozempic and Wegovy, added 6.8%, while Gubra added 17.9%. Despite this, the shares of Zealand and Gubra are still down 28% YTD, while Novo's securities are down 50%.

"Securities like Novo Nordisk, Zealand Pharma and Gubra jumped this week primarily because investors are exiting the expensive tech and artificial intelligence sectors," IG Group chief market analyst Chris Bisham told Bloomberg. - They've also lagged some U.S. peers, so part of the rise is just catching up."

The year 2025 turned out to be a challenging one for European stocks of companies producing weight loss drugs, Bloomberg writes. Earlier this year, Goldman Sachs analysts lowered their forecast for the volume of this market, citing possible pressure on prices and the limited period of time for patients to take the drugs. Uncertainty surrounding the regulation of drug costs in the U.S. and possible duties has also put pressure on the healthcare sector as a whole.

According to analysts, the current weakness in pharma stocks is creating a buying opportunity, and capital rotation is being seen in both Europe and the US. "After a long run-up on the back of AI, investors are locking in profits in shares of major technology companies and reallocating funds to more reasonably valued sectors - industrials, financials, energy and healthcare," said David Miller, portfolio manager and investment director at Catalyst Funds.

Deutsche Bank analysts admitted this week that maintaining a buy rating on Novo Nordisk's securities was "one of the most painful decisions" of their careers, Bloomberg writes. Still, they believe the potential risk-return ratio ahead of several likely catalyst events in the coming months is "disproportionately high at current levels." These events include the results of a clinical trial of semaglutide (the main active ingredient in Novo Nordisk's Ozempic and Wegovy) in patients with mild Alzheimer's disease and a decision by U.S. medical regulator the FDA on whether to approve Novo's tablet form of Wegovy.

"There are plenty of reasons to remain optimistic about Novo," Sebastien Malafoss, a fund manager at Edmond de Rothschild Asset Management, said in an interview with Bloomberg. - The company could be the first to bring an oral form of GLP-1 to market."

Zealand Pharma shares continued to rise after the company said it has suspended development of a potential next-generation obesity drug, dapiglutide. The company said the market had become too saturated for a new product to stand out. It's a "measured decision," said Barclays analyst Ihan Li.

In addition to European companies, stocks of large pharma and biotech companies from the US are also showing strong growth this week. According to Jared Holtz, a healthcare specialist at Mizuho, the long-standing underperformance of the U.S. healthcare sector and its low multiples make it attractive to investors who want to stay in the market, but find it prudent to partially exit the overbought segment. Barron's writes about it.

"If you want to articulate a fundamental argument in favor of an improving outlook for the health care sector as a whole, it's that Wall Street has been discussing the same risks and headwinds for the better part of a year now," Holtz noted in Barron's outline. - "And I think there are investors who believe: companies can get through these challenges and come out of them in decent shape - at least at current valuations.

This article was AI-translated and verified by a human editor