Goldman Sachs Warns AI Investment Boost to S&P 500 Earnings Unlikely to Last

Goldman Sachs Research warns of an uncertain outlook for S&P 500 earnings growth in coming years. According to their base case, earnings will decelerate but not collapse. The research firm attributes this to the fading tailwind from AI investment that gradually transitions into a growing boost from AI productivity.

The forward price-to-earnings ratio has fallen from 23 times a year ago to 19 times today, matching its 10-year average. However, Snider notes that even an 'average' multiple may be expensive if current earnings are unsustainable. The cyclically adjusted P/E ratio has climbed to one of the highest readings on record.

Goldman Sachs forecasts the S&P 500 will rise to 8,700 over 12 months, up from 7,764 on September 21. Their strategists' outlook implies a P/E multiple on consensus forward EPS that remains close to the current level of 19 times.