Goldman Sachs maintains a positive outlook on the US stock market, forecasting an 8% rise in the S&P 500 by the end of 2026.
The primary engine for this growth is strong corporate earnings. Recent data from the first quarter of 2026 showed earnings per share (EPS) grew by a remarkable 28%, significantly beating expectations. This growth is heavily concentrated in companies benefiting from the artificial intelligence boom.
So, what's fueling these earnings? It's the massive spending, or capital expenditure (capex), by big tech companies on AI infrastructure. Hyperscalers like Meta and Alphabet are pouring hundreds of billions of dollars into building data centers and buying advanced chips. This spending directly translates into revenue and profits for the companies that supply this critical infrastructure, from chipmakers to energy providers.
A key concern for investors has been the 'record' amount of new government bonds and stocks hitting the market. The U.S. Treasury is issuing a lot of debt, and companies like Alphabet are raising capital. Ordinarily, this increased supply could push stock prices down.
However, Goldman Sachs argues this isn't a major threat. Why? Because of corporate share buybacks. Companies like Apple are using their massive cash reserves to buy back their own stock, with total buybacks approaching $1 trillion. This activity effectively removes shares from the market, creating a powerful source of demand that more than offsets the new supply from IPOs and other offerings.
Despite the optimism, the path forward isn't without bumps. First, inflation remains sticky, as seen in the recent May CPI report. This could force the Federal Reserve to keep interest rates higher for longer. Second, while companies are spending heavily on AI, the actual productivity gains are not yet clear. Most management teams mention AI on earnings calls, but very few can quantify its impact on their bottom line. This creates uncertainty about future earnings.
Goldman's advice is to navigate this environment by focusing on companies with proven earnings growth, particularly AI infrastructure beneficiaries. At the same time, they recommend balancing portfolios with stocks less correlated to the AI theme to manage potential volatility.
- Glossary:
- Capex (Capital Expenditure): Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment.
- Share Buyback: When a company buys its own shares from the marketplace, reducing the number of outstanding shares. This often increases the value of the remaining shares.
- Hyperscaler: A large cloud service provider that can provide computing and storage services at a massive scale (e.g., Amazon Web Services, Google Cloud, Microsoft Azure).