Can AI Investment Drive S&P 500 Earnings Even Higher?

The recent strength of S&P 500 earnings has raised concerns among some investors that stocks are in an “earnings bubble,” according to Goldman Sachs Research. Our strategists expect the boost to earnings from investment in artificial intelligence (AI) to gradually fade, making productivity gains from AI increasingly important for stock profitability.

Recent earnings growth has been “extraordinary,” writes Ben Snider, chief US equity strategist at Goldman Sachs Research, in a report. S&P 500 earnings per share (EPS) grew 51% in the second quarter (year over year) and 26% during the past four quarters. By comparison, the S&P 500’s four-quarter growth in EPS has averaged 7% during the past 30 years.

Earnings have also pulled ahead of their historical relationship with US economic growth. “Our base case is for S&P 500 earnings growth to decelerate, not collapse, in coming years,” says Snider.

Is the stock market in an earnings bubble?

“Because equity prices have failed to keep pace with surging earnings, near-term valuations show no hint of a bubble,” Snider writes. The forward price-to-earnings ratio has fallen from 23 times a year ago to 19 times today, matching its 10-year average.

That said, “even an 'average' multiple may be expensive if current earnings are unsustainable,” he adds. The cyclically adjusted P/E ratio, which uses the trailing 10 years of earnings, has climbed to one of the highest readings on record. It falls short of the 1999-2000 peak but exceeds the level reached in 2021.

What is the outlook for the S&P 500?

Goldman Sachs Research forecasts the S&P 500 will rise to 8,700 over 12 months, up from 7,764 on September 21. Our strategists’ outlook implies a P/E multiple on consensus forward EPS that remains close to the current level of 19 times. Snider expects investors to remain uncertain in the coming quarters about AI’s impact on long-term profits, making a dramatic increase in valuations unlikely.

S&P 500 EPS are forecast to grow about 11% in both 2027 (to $415) and 2028 ($460). Earnings are expected to be driven by solid GDP growth and a fading tailwind from AI investment that gradually transitions into a growing boost from AI productivity. “Energy prices and interest rates create near-term macro risks around these forecasts, but the impact of AI is the biggest long-term question for corporate earnings,” Snider writes.

Is the boost to the S&P 500 from AI investment sustainable?

Almost half of S&P 500 growth in EPS in 2026 comes from AI investment, according to Goldman Sachs Research. The largest US hyperscaler companies are on track to spend $800 billion on capital expenditures this year, an increase of 94% over 2025. That money is flowing through the earnings of chipmakers, tech hardware suppliers, industrial firms, and utilities, Snider says.

There are second-order effects too. The boom has lifted capital markets activity and supported consumer spending through rising household wealth. However, both consensus and Goldman Sachs Research analyst forecasts show hyperscaler capex growing at a slower rate in coming years.

In the meantime, the hyperscalers’ equipment carries depreciation charges that keep climbing as spending growth slows. This will further dampen the boost of AI investment spending to S&P 500 earnings growth.

The impact of AI investment and memory earnings on US stocks

“Hyperscaler capex has consistently surprised relative to consensus estimates during the last few years, and the potential for additional surprises going forward creates a wide range of potential S&P 500 earnings outcomes,” Snider writes. Goldman Sachs Research’s equity analysts expect $1.2 trillion of hyperscaler capex in 2027 and $1.4 trillion in 2028.

A surprise of $250 billion in either direction next year would move S&P 500 earnings growth by roughly 6 percentage points in the same direction, according to Goldman Sachs Research.

Strong demand and tight supply have boosted semiconductor prices and gross margins. Memory producers are generating gross margins of roughly 80%, more than double their historical average. “Margin expansion has accounted for a large share of recent semiconductor earnings growth, but that boost should fade going forward,” Snider writes.

The appreciation in equity investment stakes is also temporarily inflating S&P 500 earnings, according to Goldman Sachs Research. Large technology companies recorded roughly $150 billion of unrealized investment gains in private companies in the second quarter of 2026, translating to 12% of S&P 500 EPS. Goldman Sachs Research expects more of this income in the second half of 2026, followed by a much smaller contribution in 2027.

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