AI-driven profit growth, Goldman Sachs raises US stock target: S&P 500 may reach 7,600 by year-end

```

Goldman Sachs has raised its year-end target for the S&P 500 to 7,600 points, believing that sustained profit growth driven by AI investment will lead U.S. stocks to continue reaching new highs.

The S&P 500 index has rebounded 12% since March 30, marking the biggest surge since April 2020. The phase improvement in geopolitical outlook has provided important background for this rebound. According to Chase Wind Trading Desk, Goldman Sachs portfolio strategist Ben Snider set the S&P 500 year-end target at 7,600 points in a report released on April 20, about 7% higher than current levels, and expects 2026 and 2027 earnings per share to grow by 12% and 10%, respectively, with the price-to-earnings ratio remaining near the current level of about 21 times.

AI investment expenditure is the key driver behind the upward revision of profit expectations. Goldman Sachs estimates that this year, AI investment will contribute about 40% of the S&P 500's earnings per share growth, with a small number of tech stocks already dominating recent revisions to index profit forecasts. Consensus profit forecasts for the S&P 500 for 2026 and 2027 have been collectively raised by 4% since the end of January, and stock buyback authorizations this year have reached a record-breaking $422 billion to date.

Narrowing market breadth and ongoing geopolitical volatility remain short-term risks. S&P 500 market breadth has dropped to one of the narrowest levels since the internet bubble, and the impact of energy prices and supply chain disruptions on consumer demand and corporate profit margins will be the main focus of this earnings season.

Target Upgrade: Profit Growth Drives the Index to New Highs

Goldman's 7,600-point year-end target embeds the following assumptions: S&P 500 earnings per share will rise from $275 in 2025 to $309 in 2026 (up 12% year over year), and further to $342 in 2027 (up 10%), with the price-to-earnings ratio remaining near 21 times.

Goldman Sachs notes that current market pricing broadly reflects its economists’ forecasts of steady but below-trend GDP growth over the next few quarters. Against this background, stocks sensitive to macroeconomic growth are relatively less attractive. Goldman Sachs recommends more allocation to companies benefiting from investments in electric power infrastructure and long-term growth stocks with individual growth logic. Goldman further notes that the narrowing of recent valuation premiums for many growth stocks reinforces the rationale for tilting toward long-term growth.

Market Rally: Geopolitical Easing Boosts Bullish Sentiment

The S&P 500 has risen 12% since March 30, marking the strongest increase since April 2020, and the second strongest since March 2009. Goldman Sachs points out that experiences in 2009, 2020, and 2025 all show that wise stock markets often react to signs of improvement ahead of a “full clear” of warnings.

Market forecasting has backed the rebound. According to Polymarket data, odds for the Iran conflict ending before June 30, 2026 have surged since the end of March. Goldman Sachs believes that stock market fluctuations will continue to be highly linked to geopolitical dynamics in the short term.

Sentiment indicators have recovered more moderately than price rebounds. The Goldman Sachs U.S. stock sentiment indicator has recovered from -0.9 on March 27 to +0.8 now, close to mid-January levels, but far below the historical “excessive excitement” peak of +2.8. Institutional investors’ renewed buying is the main driver of this recovery, and individual investors’ activity has also picked up during this rally. Goldman Sachs notes that the removal of rules on frequent day trading and relaxation of some margin account minimum equity requirements have increased the likelihood of continued individual investor activity.

Positive signals at the corporate action level are especially prominent. This year so far, U.S. stock buyback authorizations have reached $422 billion, a record high for this period; U.S. strategic M&A announcements are up over 100% year-on-year; Goldman’s IPO barometer also remains above average. Goldman Sachs believes that some investors’ concerns about ultra-large IPO candidates impacting the market are somewhat exaggerated, with limited public float and historical precedents supporting this judgment.

Q1 Earnings Season: AI Capital Expenditure Guidance Is Key Variable

This week, about 15% of S&P 500 constituent companies will release results, and 90% will have disclosed by May 8. Consensus expects first-quarter S&P 500 earnings per share to grow 12% year over year, the strongest market expectation for the start of a quarter since 2021. Goldman Sachs expects overall results to slightly exceed expectations, but the real focus is on profit outlook for Q2 and beyond, especially the potential impact of energy prices and supply chain disruptions on consumer demand and corporate profit margins.

AI capital expenditure guidance from ultra-large cloud computing vendors will be the highlight this quarter. Last quarter, consensus forecasts for 2026 capital expenditure by major ultra-large vendors including Amazon, Meta, Google, Microsoft, and Oracle were raised sharply by $130 billion to $670 billion, equivalent to over 90% of projected cash flow this year. Driven by this, the Goldman Sachs AI data center stock basket is up nearly 60% so far this year. Goldman Sachs thinks that the direct beneficiaries of AI infrastructure construction remain the clearest investment opportunities in the AI investment chain; uncertainty facing the software sector is hard to dissipate in the short term, while ultra-large vendors need capital expenditure growth to slow as revenue growth accelerates to regain market momentum.

Valuation and Risk: Narrowing Market Breadth Is a Major Hazard

From a valuation perspective, the S&P 500's current forward price-to-earnings ratio of 21 times is below the January 2026 peak of 22 times and near the five-year average. Although this valuation remains at the 87th percentile over the past 40 years, Goldman Sachs believes that with profitability near historic highs and interest rates below the long-term average, current valuation is close to fair value. The price-to-earnings ratio is expected to stay around this level in the coming months, and upward potential is mainly driven by profit growth.

Narrowing market breadth is a structural signal of potential fragility. S&P 500 breadth has narrowed to its lowest levels since the dot-com bubble. Recent profit upgrades are highly concentrated in a few tech stocks, and dispersion between individual stock returns is unusually high. Goldman Sachs points out that the broad impact of AI on corporate profits and employment, as well as the inflation path and Fed policy direction, are the biggest “known unknowns” in the longer term.

~~~~~~~~~~~~~~~~~~~~~~~~

The wonderful content above comes from Chase Wind Trading Desk.

For more detailed interpretation, including real-time analysis and frontline research, please join【Chase Wind Trading Desk▪Annual Membership】

Risk Warning and DisclaimerThe market carries risk; investments should be made with caution. This article does not constitute personal investment advice and does not take into account the investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article fit their particular circumstances. Investments based on this are at your own risk. ```