S&P 500 Earnings Growth to Slow Down Says Goldman Sachs

Goldman Sachs has issued a warning that the surge in S&P 500 earnings is likely to cool down. The bank attributes the current profit boost to several temporary factors, including artificial intelligence (AI) spending and semiconductor margins. According to Goldman, AI-related capital projects by companies such as Amazon, Meta Platforms, Microsoft, and Alphabet are expected to reach $800 billion this year, nearly double 2025 levels.

However, Goldman expects the earnings boost from these investments to fade as spending growth slows down and depreciation increases. Additionally, semiconductor margins are likely to weaken, potentially cutting S&P 500 earnings by around 10%. Investment gains that contributed to second-quarter profits are also expected to contribute less in 2027.

The bank's analysis suggests that the current pace of earnings growth is above the long-term trend, but the forward price-to-earnings ratio has normalized to its 10-year average. Despite this, Goldman expects S&P 500 earnings growth to remain positive, albeit at a slower pace.