European stock markets fell on Friday, weighed down by escalating geopolitical tensions and a sell-off in technology shares.

The Stoxx Europe 600 index closed 0.3% lower, nearly erasing all of its gains for the week. Chip stocks followed declines in U.S. and Asian markets, with ASML Holding NV and BE Semiconductor Industries NV dropping 3.8% and 4.5%, respectively.

The technology sector was the worst performer, falling to its lowest level since May. This followed unexpected breakthroughs by Chinese AI startup Moonshot AI, which sent shockwaves through global markets.

Burberry Group Plc shares fell 6.4% after reporting first-quarter sales that missed expectations; Lagercrantz Group AB shares dropped 7.1% due to disappointing results. Conversely, EQT AB shares surged 11% after the Swedish private equity firm reported better-than-expected results driven by growth in investment income.

European stocks have retreated from record highs as investors assess the impact of escalating tensions between the U.S. and Iran on oil prices and inflation. Fears of a further escalation intensified after Iran refused to concede control over the Strait of Hormuz.