Wells Fargo: Sentiment indicators send a “buy” signal; hyperscale cloud vendors may take the lead

The Zhitong Finance App learned that Wells Fargo's latest sentiment indicators show that US stocks have fallen to an attractive level after experiencing a decline caused by artificial intelligence concerns and high oil prices, and issued a “buy” signal for the first time since June 2025.

The analysis team, led by chief stock strategist Ohsung Kwon, wrote in the report that historically, after “buy” signals appeared in the past, the S&P 500 index rose by an average of 6.5% over the next three months, and recorded an increase of 89%. They added that semiconductor stocks may still fluctuate in the range, but hyperscale cloud vendors and infrastructure software stocks will lead the market higher.

Kwon said that the sentiment surrounding AI financing, midterm elections, and Iran may already be too pessimistic. However, in an environment of slowing profit growth and negative liquidity, we still need to be cautious.

Although the S&P 500 index was only 1.6% below its all-time high by Monday's close, the AI trading-related sector was hit even harder. The Philadelphia Semiconductor Index has fallen 14% since October 6, and concerns about chip demand have resurfaced. This week and next, the financial reports of major AI companies will be the focus of the market.

Kwon downgraded the tech sector from increasing holdings to neutral in September, partly due to growing opposition to data centers as the midterm elections approach. Wells Fargo analysts say that recent buying signals, as a reverse indicator, reflect “extreme pessimism.”

In the past few quarters, AI capital expenditure exceeded expectations and boosted chip stocks, but Kwon believes that this future may no longer be a bullish reason: more spending means more debt issuance, crowding out the financing of cloud computing providers (neoclouds) focusing on the AI market.

He wrote, “We believe capital discipline will be a bullish reason, and hyperscale cloud vendors are becoming new leaders.” He also said that the bullish scenario for AI infrastructure is in 2027: profits will be strong at that time, and supply and demand will remain very tight.