Goldman Sachs analysts, including Katherine Bordlethwait and Robert Kaplan, emphasize that the current equity market environment, characterized by record highs and strong investor enthusiasm, is significantly underpinned by an "historic" capital spending boom. This surge in capital expenditure (capex) is predominantly driven by investment in infrastructure for artificial intelligence and computing power. They assert that continued earnings growth is crucial for the market to sustain its momentum, noting that corporate profits as a percentage of GDP are at a record high.
Goldman Sachs projects that hyperscale technology companies will spend approximately $754 billion on capital expenditure this year, marking an 83% increase from 2025, and anticipate this figure reaching $905 billion in 2027. The bank's research indicates that AI infrastructure investment is expected to contribute roughly half of all S&P 500 earnings growth in 2026. This significant AI capex cycle is seen as a structural shift rather than a short-term trend, benefiting semiconductor companies, tech hardware, industrials, and utilities through increased earnings.
Goldman Sachs maintains a bullish outlook, raising its full-year capital expenditure growth forecast to 7.8% from 6.5%, largely due to AI investments and the incentives from the One Big Beautiful Bill Act. The firm estimates that AI will boost true capex growth by 3.3 percentage points in 2026. Additionally, the bank noted that real business fixed investment rose at a 10.4% annualized rate in Q1 2026, a substantial increase from the 5.6% pace in 2025, with underlying domestic capex growth accelerating to 5% from 2.4% in 2025.
The firm's 2026 earnings-per-share forecast for the S&P 500 stands at $340, representing 24% year-over-year growth, with a projected increase to $385 for 2027 (a 13% rise). While acknowledging risks such as weak consumer spending, elevated costs, and a potential pullback in AI capital spending, Goldman's base case is that these scenarios will not materialize through the year-end. They believe that strong Q2 earnings, set to begin in mid-July, will be a critical test to validate the market's earnings-driven gains and allow the rally to continue.
