Nauman Khan
This article first appeared on GuruFocus.
Wells Fargo sees a possible opportunity in the stock market’s increasingly cautious mood, even as questions about artificial intelligence spending and future corporate profits cloud the outlook.
The bank’s sentiment measure recently reached minus 1.0, prompting a buy signal for the first time since June 2025. Strategist Ohsung Kwon noted that the indicator had stood at minus 0.5 the previous week.
Historical results offer some support for the signal. The S&P 500 gained in 89% of comparable instances, with an average three-month advance of 6.5%, although weaker profit growth and tighter liquidity have historically complicated that pattern.
Kwon expects markets to remain volatile through the end of 2026. He sees a more favorable backdrop for artificial intelligence infrastructure companies in 2027, when earnings could benefit from tight supply and demand conditions. However, additional capacity coming online in 2028 could create new pressure on semiconductor companies.
Wells Fargo estimates that semiconductor net margins currently stand at 46%, above its estimated through-cycle level of 37%. Kwon also warned that reduced spending by neocloud operators could weigh on chipmakers’ earnings, reinforcing the importance of investment discipline across the AI industry.
