Geopolitical uncertainty creates attractive environment for AI trade - Wells Fargo

Published 06/24/2025, 06:05 AM
© Reuters

Investing.com - Recent global geopolitical tensions bolster the case for a balance between defensive stocks and trades centered around artificial intelligence, according to analysts at Wells Fargo.

In a note on Tuesday, the brokerage flagged that defensive sectors -- segments that tend to provide relatively stable returns despite ructions in broader markets -- like utilities, staples and real estate all outperformed on Monday despite worries over fighting in the Middle East.

On Tuesday, Israel accused Iran of violating a ceasefire agreement previously announced by U.S. President Donald Trump. Tehran has denied the claim.

Earlier, Trump had declared that the ceasefire between Israel and Iran was now "in effect," adding that neither side should violate it.

The comments suggested that the ceasefire would take place in stages, with operations already underway being allowed to finish. An Iranian missile attack on Israel on Tuesday killed four people, according to Reuters, citing Israel’s ambulance service. Meanwhile, Tehran said an Israeli strike on northern Iran had killed nine people.

Israel, who was joined by the U.S. in its bid to erase Iran’s nuclear and ballistic missile ambitions, said it had agreed to a halt in the violence, with Prime Minister Benjamin Netanyahu noting that the operation had achieved its objectives.

Still, questions surrounded the longevity of the ceasefire. Iranian Foreign Minister Abbas Araqchi also said Tehran had no intention of continuing its retaliatory strikes moving forward, but stood ready to respond to any further aggression from Israel -- a sentiment that Netanyahu reciprocated.

Oil prices were lower, but trimmed some steeper losses. The Wells Fargo analysts recommended maintaining an "underweight" position in energy stocks, saying they "expect the group to fade."

The brokerage added that the uncertainty over the trajectory of an air war between Israel and Iran "creates a more attractive environment for the AI trade."

"In other words, we can say with a high degree of certainty that AI development and deployment will continue, independent of where the Iran story goes from here," the analysts wrote.

They noted that their 25-stock basket of names that provide the tools or technologies needed to underpin AI has risen by 21.2% since early May, outperforming the benchmark S&P 500.

Some of the stocks included in this portfolio are electrical equipment groups Eaton (NYSE:ETN), GE Vernova (NYSE:GEV), and Vertiv (NYSE:VRT); semiconductor firms Nvidia (NASDAQ:NVDA), Micron (NASDAQ:MU), and Broadcom (NASDAQ:AVGO); specialized real estate investment trusts Digital Realty (NYSE:DLR) and Equinix (NASDAQ:EQIX); and industrial power companies Talen Energy (NASDAQ:TLN) and Vistra (NYSE:VST).

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