Banking giant says it's time to take profits from this booming sector

Core Viewpoint - Wells Fargo has downgraded the S&P 500 Information Technology sector from 'Overweight' to 'Neutral' due to concerns over high valuations and overheated sentiment in the AI-driven tech rally [1] Valuation Concerns - Technology stocks are currently trading at over 46 times earnings, significantly higher than the S&P 500's average of 29 times, making them vulnerable to minor earnings disappointments [2] - The IT sector has surged approximately 60% since April, outperforming the broader S&P 500 by over 25 percentage points [4] Earnings and Market Risks - Expectations for the tech sector have risen too quickly, leading Wells Fargo to believe that high valuations and investor enthusiasm could result in underperformance if earnings fall short [6] - Ongoing U.S.–China trade tensions and concerns regarding returns on AI-related capital expenditures are additional market risks [7] Investment Strategy - Wells Fargo suggests that investors should "lock in gains" by reducing their exposure to the tech sector, despite the potential for a short-lived pullback [8] Broader Market Sentiment - Other market players, including Michael Burry, have also expressed bearish views on tech stocks, warning that mega-cap firms may be inflating profits through aggressive accounting related to AI investments [9] - Burry estimates that major tech firms could understate depreciation costs by approximately $176 billion between 2026 and 2028, artificially inflating reported profits [11]