Wells Fargo upgrades S&P 500 industrials sector to "bullish," citing support from AI infrastructure and the capital expenditure cycle.

Wells Fargo Investment Institute upgraded the S&P 500 industrials sector to "favorable" from "neutral," reversing its July 16 downgrade. The firm noted that since the prior downgrade, industrials underperformed the S&P 500 by about 7.8% through September 24, but the sector remains at the core of multiple investment cycles. AI infrastructure buildout continues to drive demand for power generation, transmission and distribution equipment, electrical systems, HVAC equipment, backup power and engineering machinery, with order backlog visibility for some short-cycle equipment extending into early 2027 and for some power and electrical infrastructure orders even beyond 2030. Wells Fargo also believes that increased infrastructure and defense spending, manufacturing reshoring, commercial aviation demand and improving general industrial activity could drive the rally to broaden from early AI beneficiaries to a wider range of industrial companies. The firm also flagged raw material costs, capacity constraints, elevated valuations at some companies and overcapacity from future supply expansion as key risks.