Wells Fargo Strategist: Yes, AI Stocks May Be Frothy — But They’re Still Worthholding

September 24, 2025

Wells Fargo’s chief equity strategist, Ohsung Kwon, is urging investors not to shy away from artificial intelligence stocks, even as signs of excess mount. In recent comments, he acknowledged the risk of an AI bubble—but argued that the long-term ramp-up in capital spending makes continued exposure to AI a smart move.

Balancing Risk and Opportunity

Kwon says the AI trade remains one of the strongest forces driving market returns, especially in segments tied to heavy AI investment like semiconductor manufacturing. While some valuations are showing froth, he doesn’t believe the situation has evolved into a full bubble — at least not yet.

He points out that so far, there’s no convincing evidence that the cycle of capital expenditure around AI is reversing. Until that happens, the theory goes, the market’s bullish posture on AI still has legs.

Rotation in Market Focus

With interest rate cuts anticipated, Kwon recommends shifting away somewhat from cyclical sectors that had previously rallied on speculation. Instead, he advocates for investors to focus more on companies with strong fundamental ties to AI — hardware, chips, infrastructure—and less on those riding purely on hype or speculative momentum.

He also sees potential upside in the recovery of capital markets, particularly in merger & acquisition activity and IPOs, which tend to benefit banks and financial institutions.

Risks to Watch

The biggest danger, according to Kwon, would be a slowdown or reversal in the AI-capital expenditure cycle. If spending stalls, many AI-tied companies could face a sharp correction.
Broader conditions like housing market weakness and manufacturing downturns could also drag on market breadth. As long as growth remains narrow (heavily concentrated in AI-related names), any negative surprise elsewhere may hit portfolios hard.

Market Outlook

Looking ahead, Kwon forecasts steady returns from AI-related sectors and believes the S&P 500 could reach new heights by year end, with even stronger gains possible into 2026. He cautions that while returns may increasingly favor a narrower slice of stocks, those with earnings momentum and clear capital investment stories are best positioned.