Goldman Sachs says fears of US earnings bubble are misplaced
The bank's strategists argue corporate profit growth is driven by real AI investment, not speculative excess, and project the S&P 500 hitting 8,700 within a year.
Goldman Sachs would like everyone to calm down about corporate America’s profit surge.
Ben Snider, the bank’s US equity strategist, released an analysis arguing that the S&P 500’s roughly 30% year-over-year profit growth in both Q1 and Q2 of 2026 reflects genuine economic strength rather than unsustainable over-earning.
The numbers behind the confidence
The S&P 500 posted cumulative earnings growth of 26% across the previous four quarters. AI-related capital expenditures contributed roughly 11 percentage points to earnings growth in 2026, making artificial intelligence the single largest engine behind the profit surge. Semiconductor companies are running gross margins around 70%, well above the 15-year average of 55%.
Goldman forecasts AI capex contributions declining to 7 percentage points in 2027 and turning slightly negative in 2028. Semiconductor margins, if they revert toward that historical 55% average, could shave approximately 10% off S&P 500 earnings.
Where Goldman sees the index heading
Snider’s team projects S&P 500 earnings per share of $415 in 2027 and $460 in 2028, representing 11% growth in each year. The 12-month price target for the S&P 500 sits at approximately 8,700, implying a 14% gain from current levels. Goldman expects that upside to come almost entirely from earnings growth rather than valuation expansion. The current forward price-to-earnings ratio is hovering around 19x, right in line with the 10-year average.
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The AI supercycle argument
Kim Posnett, the bank’s co-head of investment banking, has described the current environment as an “AI investment supercycle.” Chief economist Jan Hatzius has flagged that AI infrastructure spending is entering a slowing phase.
The three main catalysts Goldman identifies behind elevated profit margins are AI capital expenditures, expanded semiconductor margins, and gains from equity investments. All three are projected to weaken starting in 2027.
Snider’s earlier work had anticipated that strong earnings and accelerating AI adoption could sustain the bull market even through headwinds like rising oil prices and higher interest rates.
If semiconductor gross margins snap back from 70% to the 15-year average of 55%, the impact on S&P 500 earnings could be roughly 10%. Goldman’s target of 8,700 essentially requires earnings to do all the heavy lifting, as the forward P/E sitting at its decade-long average leaves limited room for multiple expansion to absorb any earnings disappointments.