Wells Fargo has adopted a more cautious view on U.S. equities, becoming the second major bank this week to temper its outlook. Analysts led by Kwon pointed to September’s historically challenging performance and growing uncertainty surrounding the sustainability of the artificial intelligence investment boom.
The team believes investors are increasingly questioning how long companies can maintain the current pace of AI-related capital spending. While concerns could intensify in the near term, Wells Fargo expects anxiety surrounding AI investment to peak soon. Its sentiment indicator also remains relatively constructive following the market selloff in mid-August.
Two key risks are drawing attention: potential overbuilding linked to AI infrastructure and the possibility of additional pauses or restrictions on data center projects as the U.S. midterm elections approach.
Markets Show Signs of Strain
Wells Fargo’s caution comes as parts of the technology sector have already begun showing weakness.
JPMorgan’s trading desk also adopted a defensive short-term stance on Monday after hawkish comments from Kevin Warsh led markets to increase expectations for additional interest-rate hikes this year.
On Tuesday, several major semiconductor stocks, including Nvidia, Advanced Micro Devices and Intel, declined. Amazon and Tesla were also among the weaker performers within the so-called Magnificent Seven.
By late morning in New York, the Philadelphia Semiconductor Index had fallen 1.4%, reaching its lowest intraday level since August 3. The index has also yet to fully recover from its decline between mid-June and July, keeping the sector under close scrutiny.
AI Investment Faces a Reality Check
Wells Fargo strategist Kwon believes AI demand will continue growing, but economic conditions and available capital could ultimately limit the pace of expansion.
He warned that the AI capital-spending cycle could enter a later stage by 2027 unless stronger economic growth supports additional investment. Growth in AI-related spending is also expected to peak next quarter.
Kwon considers Anthropic’s upcoming S-1 filing ahead of its planned IPO an important near-term catalyst. He currently favors higher-quality stocks and software companies over higher-beta semiconductor names, although a particularly strong Anthropic filing could reinforce confidence in the broader AI trade.
What Investors Should Watch?
The coming months could provide important clues about whether the AI boom has further room to run. Investors will be watching semiconductor performance, software stocks, Anthropic’s financial disclosures and any new data center restrictions.
With September historically challenging for markets, AI enthusiasm may increasingly face economic, political and infrastructure constraints.
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