Key Takeaways
- Goldman Sachs elevated its S&P 500 year-end projection to 8,000 from 7,600
- Second-quarter earnings reports, launching in mid-July, represent a pivotal moment for equity markets
- Artificial intelligence infrastructure investments are projected to fuel approximately 50% of S&P 500 profit expansion through 2026
- Hedge funds dumped technology equities at an unprecedented rate during the final week of June
- The Magnificent Seven tech giants saw their combined market capitalization shrink by over $2.3 trillion in June
On May 26, Goldman Sachs upgraded its S&P 500 year-end forecast to 8,000, marking a significant increase from its previous 7,600 projection. Chief U.S. equity strategist Ben Snider outlined the rationale in a research note dated June 28.
Goldman’s thesis rests on a simple premise: the 2026 market advance has been fueled primarily by expanding corporate profits rather than multiple expansion—meaning investors aren’t simply paying more for the same earnings.
Snider identified the approaching Q2 earnings season as “a critical test.” Successful corporate results could validate the rally’s continuation, while disappointing figures would present the market’s most substantial headwind this year.
Goldman’s Profit Growth Projections
Goldman’s analysts forecast S&P 500 earnings per share will reach $340 in 2026, representing a 24% year-over-year jump. Looking ahead to 2027, the firm anticipates $385 per share, marking an additional 13% climb.
FactSet data shows consensus estimates for Q2 earnings growth at 22%, up notably from the 18.7% expectation at quarter’s start. Revenue expansion is projected at 12.1%, the most robust rate since the second quarter of 2022.
Companies falling short of forecasts are experiencing severe punishment. Earnings misses have triggered average stock declines of 4.2%, substantially exceeding the historical norm of 2.9%.
With the S&P 500 currently hovering around 7,365, Goldman’s 8,000 price target suggests approximately 9% additional upside potential.
Artificial Intelligence Investment Underpins the Bull Case
Goldman attributes roughly half of anticipated S&P 500 earnings expansion in 2026 to AI infrastructure capital deployment.
The technology sector’s largest players are projected to allocate approximately $754 billion toward capital expenditures this year—an 83% surge from 2025 levels. Goldman forecasts this figure climbing to $905 billion in 2027.
The firm’s proprietary basket of AI data center construction-related stocks has delivered nearly 60% returns year-to-date. While semiconductor companies are the primary beneficiaries, hardware manufacturers, industrial firms, and utility providers are also experiencing earnings tailwinds.
The S&P 500 currently trades at approximately 21 times forward earnings, a valuation exceeding roughly 87% of historical observations across the past four decades. Goldman contends that near-record corporate profit margins combined with relatively accommodative interest rates support this elevated multiple.
The seven technology behemoths—Nvidia, Apple, Alphabet, Microsoft, Amazon, Broadcom, and Meta—collectively generate a 44% return on equity. Goldman anticipates this metric will decline by an average of 700 basis points next year as depreciation expenses escalate at major technology firms.
Hedge Funds Retreat From Technology at Historic Pace
While Goldman maintains its optimistic earnings outlook, hedge funds are aggressively trimming technology exposure.
Goldman’s prime brokerage data revealed that during the week concluding June 25, hedge funds liquidated technology stocks at the most aggressive pace since the firm initiated tracking in 2016.
The Magnificent Seven—Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla—comprised approximately 21.5% of hedge fund U.S. equity allocations at 2026’s outset. That concentration has contracted to 14.5%, representing the steepest six-month decline since the 2022 bear market.
This elite group shed more than $2.3 trillion in aggregate market capitalization throughout June.
Goldman’s primary scenario maintains that robust earnings performance, driven by AI-related spending, will provide support for equities through year-end. Q2 earnings season commences in mid-July, with major financial institutions reporting first.
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