Wells Fargo: Sentiment indicators issue "buy" signal, ultra-large-scale cloud vendors may take the lead in driving gains

According to information from Zhihu Finance APP, the latest sentiment indicator from Wells Fargo shows that after declines driven by concerns over artificial intelligence and elevated oil prices, the US stock market has now fallen to an attractive level and, for the first time since June 2025, has issued a "Buy" signal.

The analysis team led by Chief Equity Strategist Ohsung Kwon wrote in their report that historically, after a "Buy" signal appeared, the S&P 500 Index has increased an average of 6.5% over the following three months, with gains recorded in 89% of cases. They added that while semiconductor stocks may continue to fluctuate within a range, large-scale cloud providers and infrastructure software stocks will lead the market higher.

Kwon indicated that sentiment surrounding AI financing, midterm elections, and Iran may already be overly pessimistic. However, caution is still advised in an environment of slowing profit growth and negative liquidity.

Although as of the close on Monday, the S&P 500 Index was only 1.6% below its all-time high, AI-trade-related sectors were hit harder. The Philadelphia Semiconductor Index has dropped 14% since October 6, with renewed concerns about chip demand. This week and next, earnings from major AI companies will be the focus of the market.

In September, Kwon downgraded the technology sector rating from overweight to neutral, partly due to the approaching midterm elections and increased opposition to data centers. Wells Fargo analysts stated that the recent buy signal is a contrarian indicator reflecting "extreme pessimism" in sentiment.

In recent quarters, AI capital expenditures exceeding expectations have driven chip stocks higher, but Kwon believes this may no longer be a bullish reason: more spending means more debt issuance, crowding out financing for cloud computing providers (neoclouds) focusing on the AI market.

He wrote: "We believe capital discipline will become the bullish rationale, and large-scale cloud providers are emerging as new leaders." He also stated that the bullish scenario for AI infrastructure is in 2027: at that time, earnings will be strong and supply and demand will remain very tight.