Wells Fargo Investment Institute's Global Investment Strategist Paul Christopher noted that while AI-driven growth prospects remain sustainable for years, he advised investors to diversify their portfolios. Christopher explained that the firm has recently rotated out of certain technology (XLK) and communication services (XLC) sectors, shifting toward sectors with more reasonable valuations that still capture tech trends.

"We reduced exposure to communication services as valuations appear slightly elevated. These funds were reallocated to utilities (XLU)," Christopher stated, "which trade at just 20x P/E, compared to over 30x for both information technology (XLK) and communication services (XLC)."

The strategist clarified that this adjustment is tactical rather than a complete exit from tech themes. He also highlighted emerging markets as an attractive alternative for tech exposure. "Consider South Korea and Taiwan—chip and hardware manufacturers offer another avenue for long-term thematic participation while potentially mitigating short-term concentration risks," he added.

Christopher recommended: "A modest allocation to a broad emerging markets portfolio, alongside U.S. holdings, could serve as a well-diversified approach."

He observed a broader sector rotation from tech into defensive sectors but advised "gradually trimming consumer stocks while restoring healthcare (XLV) to benchmark weight," alongside increased allocations to utilities (XLU), industrials (XLI), and financials (XLF).

Financials (XLF) appear particularly appealing in the current rate environment. "For investors seeking diversification or reduced tech concentration, financials are a compelling choice," he explained. The thesis hinges on expectations of declining short-term rates while long-term yields stabilize or rise modestly: "Their funding costs are declining, while the long-term rates underpinning their revenue streams remain steady or even climb."