It’s time to revisit the AI trade, says Wells Fargo’s Harvey

Investing.com -- After a pullback in artificial intelligence stocks this year, Wells Fargo’s Christopher Harvey said Monday that it may be time for investors to reenter the trade.

In a note titled “Time to Revisit the AI Trade,” Harvey wrote that “the YTD drawdown has uncovered value for AI Picks&Shovels,” referring to infrastructure and service providers powering the AI ecosystem.

“The group’s risk/reward today is much more attractive than a year ago,” he said.

Harvey compared the current investment cycle to 2022’s opportunity in communication services stocks, highlighting strong fundamentals and long-term potential.

“We remain in a durable AI investment supercycle,” he wrote, adding that demand is still outpacing supply, as seen in Microsoft’s latest earnings and Meta’s capital spending plans.

“It’s not your father’s tech cycle,” Harvey noted. Unlike the dot-com bubble, today’s AI capex is driven by “profitable firms with strong balance sheets” rather than speculative companies with weak financials.

He pointed to a “symbiotic iterative cycle” between AI infrastructure and applications, underpinned by national strategic importance and faster product refresh cycles.

AI investments also appear more recession-resistant. “Datacenter construction associated with hyperscaler cap-ex has multi-year lead times,” Harvey wrote, arguing that AI-linked firms are “less exposed to potential recession.”

He expects capital spending to increasingly replace operating costs as AI boosts productivity.

Harvey also dismissed concerns about rising tariffs, saying U.S. AI supply chains remain largely shielded. “GPUs and finished servers are USMCA-compliant goods,” and Mexico already accounts for two-thirds of U.S. server imports, with room to grow.

Following a roughly 29% drawdown from recent highs, Harvey said many AI stocks now trade closer to market multiples, but still offer “premium growth expectations.”

Wells Fargo introduced a 25-stock “AI Picks&Shovels” portfolio to capitalize on the trend, with names including Nvidia (NASDAQ: NVDA), Broadcom (NASDAQ: AVGO), Taiwan Semiconductor, AMD (NASDAQ: AMD), GE Vernova, Marvell (NASDAQ: MRVL) Technology, and Dell Technologies (NYSE: DELL).

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