Wells Fargo upgrades US AI infrastructure stocks to neutral after chip rout

Wells Fargo upgraded its view on US artificial intelligence infrastructure companies to “neutral” from “negative,” saying a sharp decline in semiconductor stocks had improved the sector’s risk-reward profile despite persistent concerns about slowing AI investment, Reuters reported.

Semiconductor shares have fallen about 38% from their June highs, while valuation multiples have contracted significantly. The brokerage said current prices already reflect much of the expected slowdown in AI-related earnings growth.

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“Risk-reward is reasonable,” analysts led by Ohsung Kwon said in a note on Monday.

Current semiconductor valuations imply annual earnings growth of roughly 8%, according to Wells Fargo.

Democratic victories in last week’s US midterm elections, including in states where opposition to new data centres has increased, fuelled concerns that tighter regulation could slow the AI infrastructure buildout. The resulting sell-off erased about $3 trillion from the market value of S&P 500 companies.
However, Wells Fargo warned that markets have not fully priced in the risk of an earnings downturn in 2028 as capital spending peaks, supply increases and depreciation costs rise.For live updates on US Markets, click here

The brokerage estimates that AI-related investment added about eight percentage points to S&P 500 earnings growth over the past year.

“The tailwind is expected to continue in 2027,” the analysts said, but it could largely disappear in 2028 as spending growth slows and depreciation expenses increase.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times)