Wells Fargo’s chief equity strategist says markets may look past near-term earnings softness as long as one pillar holds: sustained spending on artificial intelligence infrastructure.
In a new CNBC interview, Ohsung Kwon says investors are already braced for slower growth this earnings season, shifting attention to what comes next.
Kwon says weaker Q4 earnings reports are unlikely to shock markets.
“I think the optimism has to hold given the recent rally that we saw. But I think some of the weakness that we might see in Q4 is going to get overlooked because everyone knows that earnings are going to decelerate this earnings season.”
But Kwon highlights that current growth remains above historical norms.
“Yeah, 8% is not bad. That’s actually a faster, stronger growth than what we usually see, which is about 6% So it’s above trend still.”
According to Kwon, forward-looking signals matter more than backward-looking numbers as the market may already be anticipating a broader macro shift.
“But the outlook is more important. And given that we might be on the cusp of a potential reflation cycle and potential demand recovery going forward, I think some of the weakness might get overlooked.”
Kwon says one factor investors are watching closely is whether AI spending begins to roll over.
“One important aspect in the market that has to hold is the AI CapEx because there has been a big question mark in what AI companies are going to do in terms of the AI CapEx. I think it’s a little too early to call a peak in AI CapEx. Obviously, there is that reaction function that is shifting in the market, where AI CapEx is no longer rewarded. But the thing is, this isn’t the first time that the market is pushing back on CapEx. We saw that in 2024, too.”
He argues the strategic stakes make spending cuts unlikely.
“And I think this is an AI arms race. I think cutting CapEx is the last thing that hyperscalers are going to do. And I think AI CapEx is going to continue.”
Wells Fargo is not alone in the view that AI CapEx will continue this year. Recently, Altimeter’s Brad Gerstner said that he sees AI CapEx jumping from $150 billion in 2023 to $500 billion in 2026.
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