Nov 10 (Reuters) - Wells Fargo upgraded its view on US AI infrastructure companies to "neutral" from "negative", saying a sharp selloff in semiconductor stocks has improved the sector's risk-reward profile even as concerns persist about a slowdown in AI spending. The brokerage said semiconductor shares have fallen about 38% from their June highs, while valuation multiples have compressed significantly, leaving much of the expected moderation in AI-related earnings growth already reflected in stock prices.
• "Risk-reward is reasonable," said Wells Fargo analysts led by Ohsung Kwon in a note on Monday
• Current valuations of semiconductor stocks imply earnings growth of roughly 8% year-over-year, according to the brokerage
• Democratic victories in last week's US midterm elections, including in states where opposition to new data centers has been growing, fueled concerns that tighter regulation could slow the AI infras buildout
• The resulting selloff erased about $3 trillion in market value from S&P 500 companies
• However, the brokerage said the risk is a potential EPS downturn on peak capex and additional supply in 2028, which is not priced in
• Wells Fargo estimates AI-related capital spending 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 is set to largely disappear in 2028 as spending growth slows and depreciation costs rise
(Reporting by Joel Jose in Bengaluru; Editing by Tasim Zahid)
