Goldman Sachs Group Inc. strategists, led by Chief U.S. Equity Strategist Ben Snider, argue that concerns about an "earnings bubble" in the U.S. are misplaced. Corporate America's profits, particularly for S&P 500 firms, have shown significant growth, with jumps of around 30% in each of the first two quarters of the year, marking some of the best showings on record. The firm attributes this strong performance to a robust economic outlook and the ongoing artificial intelligence boom. Full-year earnings expectations for 2026 are the strongest since the post-Covid rebound in 2021, and despite the rapid growth, Goldman Sachs views it as an orderly cyclical peak rather than an impending crash.
While acknowledging that corporate earnings are growing much faster than the economy, Goldman Sachs forecasts that S&P 500 earnings per share (EPS) growth will decelerate but not collapse in the coming years. The bank projects an 11% year-on-year EPS growth for both 2027 and 2028, reaching $415 and $460 respectively. This outlook is supported by accelerating gross domestic product growth and a gradual productivity boost from AI adoption. However, they also point to signs of "over-earning," noting that recent strength has exceeded the long-term average and prior correlation with economic growth.
Several temporary dynamics are contributing to the current earnings surge, which Goldman expects to subside. Artificial intelligence capital expenditure, particularly from hyperscalers like Amazon, Meta, Alphabet, and Microsoft, accounted for nearly half of this year's index EPS growth, but this tailwind is expected to shrink and become a marginal drag by 2028 as spending growth slows and depreciation costs mount. Additionally, high profit margins in the semiconductor industry, currently near 70%, are a concern; a decline to their 15-year average of 55% could reduce S&P 500 earnings by about 10%. Non-operating income, especially from private investment gains by mega-cap tech, also contributed significantly but is expected to fade, potentially creating an 8 percentage-point drag on 2027 growth comparisons. Near-term risks to forecasts include energy prices and interest rates, while the long-term impact of AI remains the most significant question.
