Goldman Sachs anticipates the recent surge in S&P 500 profits, driven by AI investments, will slow as temporary supports fade, raising questions over long-term profit growth and market valuations.
Goldman Sachs expects the recent surge in S&P 500 profits to slow rather than unwind, arguing that a cluster of temporary supports is flattering earnings growth more than signalling a lasting step-up in corporate profitability.
The bank said S&P 500 earnings per share jumped 51% year on year in the second quarter and were up 26% over the past four quarters, a pace that has pushed profits above longer-term trend. Yet Goldman also noted that the index’s forward price-to-earnings ratio has eased to 19, down from 23 a year earlier and roughly in line with its 10-year average. That suggests investors have become less willing to pay up for the market even as corporate profits have improved.
A big part of the earnings lift has come from artificial intelligence spending. Goldman has pointed to heavy capital investment by Amazon, Meta Platforms, Microsoft and Alphabet, with the group expected to spend about $800 billion on capital projects this year, nearly twice the level implied for 2025. In a separate research note, the bank said that AI infrastructure investment will account for about half of this year’s earnings growth and has lifted its year-end target for the S&P 500 to 8,000, from 7,600, on the back of stronger profit forecasts.
Still, Goldman expects that boost to fade as spending growth slows and depreciation charges rise. Its research suggests the earnings contribution from AI capital expenditure will diminish over time, while the bigger long-term question becomes whether AI can lift productivity enough to replace spending as a profit driver. The bank has said the market is now relying more on corporate earnings than on multiple expansion, and that dynamic is likely to continue through 2026 and into 2027.
Other temporary supports are also expected to lose force. Goldman said margins in semiconductors have been helping profits, but weaker chip profitability could cut S&P 500 earnings by about 10%. Gains from technology companies’ investment holdings also boosted second-quarter results, yet those gains are expected to make a smaller contribution in 2027. In one of its earlier forecasts, Goldman said AI investment, semiconductor margin expansion and equity investment income were among the main short-term drivers of earnings.
Even so, the bank’s broader outlook remains constructive. Goldman has raised its 2026 S&P 500 earnings-per-share forecast to $340, implying 24% growth, and sees that rising to $385 in 2027. Another Goldman forecast puts the index at 8,700 within 12 months, driven by profit growth rather than a higher valuation. But the firm has also warned that elevated market valuations leave little room for disappointment, particularly if the earnings outlook weakens or if the hoped-for productivity gains from AI take longer to arrive.
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