Wells Fargo raised its S&P 500 earnings growth forecast to 22% for the second quarter, citing continued strength in AI infrastructure spending across semiconductors, hardware, and utilities. The bank identified a tension: while AI-linked sectors are powering overall earnings, large cloud providers' heavy spending on AI without immediate payoffs has soured investor mood. Management believes combining shareholder returns with disciplined AI investment could restore confidence.
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Wells Fargo projects S&P 500 earnings per share will grow 22% year-over-year in the second quarter, up from 19% growth in the first quarter. The bank expects companies tied to AI infrastructure—semiconductor makers, technology hardware firms, capital equipment suppliers, and utilities—to contribute more than half of the index's overall earnings growth.
Why it matters
AI infrastructure spending is proving durable enough to lift broad market earnings. However, Wells Fargo notes that large cloud computing companies (hyperscalers) are investing heavily in AI without delivering immediate returns to shareholders, which has weighed on investor sentiment toward those firms. The widening gap between hyperscalers and the broader market signals investor appetite for clearer payoff timelines.
What to watch
Wells Fargo suggests that larger share repurchases or dividends, paired with disciplined AI investment, could help improve confidence in technology stocks. The question now is whether hyperscalers can demonstrate faster returns on their AI capital spending.
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