Goldman Sachs raised its year-end target price for the S&amp;P 500 to 7,600 points, believing that sustained earnings growth driven by AI investment will propel US stocks to new highs.
The S&amp;P 500 index has rebounded 12% since March 30, marking its largest gain since April 2020, with a temporary improvement in geopolitical prospects providing important context for this rally. According to Wind Trading Desk, Goldman Sachs portfolio strategist Ben Snider, in a report released on April 20, set the year-end target price for the S&amp;P 500 at 7,600 points, representing an increase of approximately 7% from current levels, and projected per-share earnings growth of 12% and 10% for 2026 and 2027 respectively, with the price-to-earnings ratio remaining near the current level of approximately 21 times.
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AI investment spending is a key driver for revising earnings expectations upward. Goldman Sachs estimates that AI investment will contribute approximately 40% of the per-share earnings growth for the S&amp;P 500 this year, with a handful of technology stocks dominating the recent direction of index earnings revisions. Consensus earnings expectations for the S&amp;P 500 for 2026 and 2027 have risen cumulatively by 4% since late January, while stock buyback authorizations year-to-date have reached a record $422 billion.
Narrowing market breadth and continued geopolitical volatility remain short-term risks. S&amp;P 500 market breadth has fallen to one of the narrowest levels since the Dotcom Bubble, and the impact of energy prices and supply chain disruptions on consumer demand and corporate profit margins will be the central focus of this quarter's earnings season.
<h2>Target Hike: Earnings Growth Drives Index to New Highs</h2>
The 7,600 year-end target embedded in Goldman Sachs' analysis includes the following assumptions: S&amp;P 500 per-share earnings rising from $275 in 2025 to $309 in 2026 (a 12% year-over-year increase), further rising to $342 in 2027 (a 10% year-over-year increase), with the price-to-earnings ratio maintaining around 21 times.
Goldman Sachs pointed out that current market pricing has largely reflected its economists' forecasts for steady but below-trend GDP growth over the coming quarters. In this context, the attractiveness of macroeconomic growth-sensitive stocks is relatively limited, and Goldman Sachs recommends increasing allocations to long-term growth companies that benefit from power infrastructure investments and possess idiosyncratic growth logic. Goldman Sachs also noted that the narrowing of valuation premiums for many growth stocks recently has further reinforced the rationale for tilting towards long-term growth.
<h2>Market Rebound: Geopolitical Thaw Boosts Bullish Sentiment</h2>
The S&amp;P 500 index has risen 12% since March 30, its strongest performance since April 2020 and the second-strongest since March 2009. Goldman Sachs noted that market experiences in 2009, 2020, and 2025 all indicate that forward-looking stock markets often react to improving signals before &#34;all-clear&#34; signals are fully issued.
Market predictions provide corroboration for this rebound. According to Polymarket data, the market-implied probability of the Iran conflict ending before June 30, 2026, has surged significantly since late March. Goldman Sachs believes that short-term stock market volatility will continue to move closely in tandem with geopolitical dynamics.
The recovery in sentiment indicators has been more moderate than the price rebound. The Goldman Sachs US Equity Sentiment Index rose from -0.9 on March 27 to +0.8 currently, approaching mid-January levels, but remains far below the historical peak of +2.8 reached during periods of &#34;excessive euphoria.&#34; Institutional investors' repositioning was the primary driver of this recovery, while retail investor activity also increased during this rebound. Goldman Sachs noted that the cancellation of rules regarding intraday frequent trading and the relaxation of minimum equity requirements for certain margin accounts have increased the likelihood of sustained retail investor participation.
Positive signals at the level of corporate action were particularly prominent. Year-to-date US stock buyback authorization size reached $422 billion, a record high for the same period; US strategic M&amp;A announcement size grew by over 100% year-over-year; the Goldman Sachs IPO barometer also remained above its mean. Goldman Sachs believes that concerns among some investors about potential market disruption from ultra-large IPO candidates may be exaggerated, as the limited proportion of public floatable shares and historical precedents support this judgment.
<h2>Q1 Earnings Season: AI Capital Expenditure Guidance is the Key Variable</h2>
Approximately 15% of S&amp;P 500 component companies will report earnings this week, with 90% completing disclosure by May 8. Consensus expectations anticipate a 12% year-over-year increase in S&amp;P 500 per-share earnings for Q1, representing the strongest market expectation at the start of a quarterly earnings season since 2021. Goldman Sachs expects overall results to slightly exceed expectations, but the true focus of the market is the earnings outlook for Q2 and beyond, particularly the potential impact of energy prices and supply chain disruptions on consumer demand and corporate profit margins.
Capital expenditure guidance from hyperscale cloud providers will be the top priority this quarter. In the previous quarter, consensus expectations for capital expenditure in 2026 for major hyperscale vendors including Amazon, Meta, Google, Microsoft, and Oracle were raised by $130 billion to $670 billion, equivalent to over 90% of expected cash flow for this year. Driven by this, the Goldman Sachs AI Data Center Stock Basket has risen nearly 60% year-to-date. Goldman Sachs believes that direct beneficiaries of AI infrastructure construction currently remain the most clear-cut investment opportunities in the AI investment chain; disruptive uncertainties facing the software sector are unlikely to dissipate in the short term, and hyperscale vendors need to accelerate revenue growth while slowing capital expenditure growth to regain market momentum.
<h2>Valuation and Risks: Narrowing Market Breadth is a Major Concern</h2>
From a valuation perspective, the current forward P/E ratio of the S&amp;P 500 at 21 times is lower than the January 2026 peak of 22 times and is near the five-year average. Although this valuation remains in the 87th percentile over a 40-year historical dimension, Goldman Sachs believes that with profitability nearing historical peaks and interest rates below long-term averages, current valuations are close to fair value. It is expected that the P/E ratio will remain near this level in the coming months, with upside space primarily driven by earnings growth.
The narrowing of market breadth is a structural signal of potential fragility. S&amp;P 500 market breadth has narrowed to one of the lowest levels since the Dotcom Bubble, highly consistent with the characteristic of recent earnings revisions being heavily concentrated in a few technology stocks, while return dispersion among individual stocks within the market is also at an abnormally high level. Goldman Sachs pointed out that the broad impact of AI on corporate earnings and employment, as well as the inflation path and the Federal Reserve's policy direction, represent the largest known unknowns in the longer-term dimension.

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Goldman Sachs stated that AI investment spending contributed approximately 40% of the earnings growth in US stocks, offsetting the impact of geopolitical volatility. Although market breadth has narrowed to its lowest level since the Dotcom Bubble, robust corporate buybacks and AI infrastructure construction remain core supports. The capital expenditure guidance from hyperscale vendors in Q1 earnings reports will be the key variable determining whether earnings outlooks are revised upward

- Goldman Sachs has raised its year-end target for the S&P 500 to 7,600 points, attributing potential growth to ongoing AI investments.  
- The S&P 500 has rebounded 12% since March 30, driven by improvements in geopolitical conditions, while AI spending is expected to contribute approximately 40% to earnings growth this year.  
- Despite the positive outlook, risks persist from narrowed market breadth and geopolitical volatility, which could impact consumer demand and corporate profit margins in upcoming earnings reports.

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AI-Driven Earnings Growth: Goldman Sachs Raises US Stock Targets; S&P 500 Could Test 7,600 by Year-End