Wells Fargo has moved its rating on U.S. companies building artificial intelligence infrastructure from negative to neutral. The bank justified the change by pointing to a marked improvement in the sector's risk–reward profile after semiconductor stocks plunged.
Why the change?
In a Monday note, lead analyst Oszung Kvon and his team highlighted that semiconductor equities have fallen roughly 38% from their June peaks. Alongside the price declines, valuation multiples have come down, and current share prices largely reflect an expected moderation in AI-related earnings growth. According to Wells Fargo, current valuations for chip manufacturers imply about 8% annual earnings-per-share (EPS) growth.
Given this shift, the bank concluded that the risk–reward trade-off has reached a reasonable level and therefore upgraded its stance from negative to neutral.
The recent sell-off and its drivers
The most recent wave of selling was triggered by last week's U.S. midterm election results. The report notes that Democrats won in several states where local opposition to new data-center construction has been growing. Those outcomes amplified concerns that tighter regulation could slow the build-out of infrastructure supporting AI.
As a result of the market panic, the market capitalization of S&P 500 companies fell by about $3 trillion.
Near- and medium-term outlook
Wells Fargo estimates that AI-related investment added roughly eight percentage points to S&P 500 earnings growth over the past year. Analysts expect that tailwind could persist through 2027, but it may largely fade by 2028 due to a slowdown in investment pace and higher depreciation charges.
The bank warned that a projected investment peak in 2028 and potential oversupply could lead to a decline in EPS — a risk the market has not fully priced in.
Notes
The information above is based on Reuters reporting. This article does not constitute investment advice or an investment recommendation. An AI assistant contributed to preparing this article; a journalist edited and verified the final content.
