Goldman Sachs Predicts S&P 500 Reach 8,700 on Earnings Growth

Goldman Sachs Research has set a bold 12-month target for the S&P 500, predicting it will climb to 8,700, a roughly 13.5% increase from its recent levels. This forecast hinges on sustained earnings growth rather than higher valuations. The investment bank anticipates that while AI spending may slow, productivity gains from AI will become the new driver of profitability.

S&P 500 earnings per share (EPS) surged 51% year-over-year in the second quarter and 26% over the past four quarters, far outpacing the 30-year average of 7%. Goldman Sachs credits AI investment for nearly half of this year’s EPS growth, with major tech firms expected to spend $800 billion on capital expenditure in 2026. However, the bank warns that this spending boost will fade, shifting focus to AI-driven productivity.

Despite the optimism, Goldman Sachs acknowledges risks. The Shiller PE Ratio, a widely tracked indicator, has risen above 40, a level historically associated with market peaks like the dot-com bubble. While current valuations remain near their 10-year average, the sustainability of earnings growth remains a key question. The bank’s forecast assumes an 11% annual EPS growth through 2028, supported by solid GDP growth and AI advancements.

Goldman Sachs does not foresee an earnings bubble but expects a cooling period. The shift from AI spending to productivity gains will be critical in determining the S&P 500’s trajectory. As of October 2, the index closed at 7,666.45, nearing its all-time high of 7,816.70, setting the stage for potential further gains.