Goldman Sachs: Profits Fueling S&P 500 Rally Amid AI-Driven Earnings Growth

Goldman Sachs' latest report suggests that profits are driving the S&P 500's rally towards new highs in 2026. The bank's research found that earnings growth is being fueled by a combination of higher profit margins and revenue increases, rather than just valuation multiples.

According to Goldman Sachs, the S&P 500 climbed toward new highs while its valuation multiple fell, indicating that profits are doing the heavy lifting for an index that could have stalled once the Federal Reserve paused rate cuts. The bank raised its 2026 earnings-per-share (EPS) forecast for the S&P 500 to $340 and projected 24% annual profit growth.

The report also highlighted the significant role of artificial intelligence (AI) infrastructure spending in driving earnings growth, with Goldman Sachs' chief U.S. equity strategist, Ben Snider, estimating that AI capital spending is responsible for roughly half of all S&P 500 earnings growth in 2026. This spending wave has outpaced Wall Street forecasts for three consecutive years, and hyperscale technology companies are expected to pour $754 billion into capital expenditure in 2026, an 83% jump from 2025.

However, the report also noted that a pullback by two or three major hyperscalers would thin out the profit growth powering the index. The concentration risk behind Snider's estimate remains the defining feature of this earnings cycle, and investors should pay close attention to quarterly capital expenditure guidance from Microsoft, Alphabet, Amazon, and Meta as leading indicators for index-level earnings.