Goldman's 2026 Call: S&P 500 To 7,600 — But Valuations Are The Wild Card

Benzinga · 4d ago

Goldman Sachs (NYSE:GS) just put a big number on the table for 2026, betting the S&P 500 can climb to 7,600, even as the market sits on valuations that could turn minor disappointments into significant drawdowns.

In its latest equity outlook, the firm forecast a 12% total return for the S&P 500 in 2026, noting that earnings should remain the primary driver of returns.

But the investment bank is flagging high valuations as the key wild card that could turn potential energy into significant volatility if corporate performance falters.

Goldman Targets 7,600 For S&P 500 In 2026, Up 12%

"We expect another year of solid gains for US equities in 2026," analyst Ben Snider said in a note shared on Tuesday.

Goldman indicated that healthy economic and revenue growth should help lift profits. They said AI adoption should add an "emerging productivity boost," while the largest stocks continue to deliver.

The bank forecasts S&P 500 earnings per share (EPS) to grow 12% in 2026 and another 10% in 2027.

In 2025, earnings accounted for 14 percentage points of the S&P 500's 16% price return. Since 1990, earnings have driven the bulk of market gains, contributing eight percentage points to the index's 9% annualized return.

Goldman's base-case scenario assumes the S&P 500 maintains its forward price-to-earnings (P/E) multiple of 22 times, in line with today's level and the market's starting point in 2025.

“But elevated multiples are hard to ignore, and they increase the magnitude of potential equity market downside if earnings disappoint expectations,” Snider said.

AI Boom Enters New Phase

Capital expenditure in artificial intelligence remains a pillar of the bull thesis.

Analysts project that hyperscaler companies — including tech giants such as Amazon.com Inc. (NASDAQ:AMZN), Microsoft Corp. (NYSE:MSFT) and Meta Platforms Inc. (NASDAQ META) — will pour $540 billion into AI-related capex in 2026. That’s equivalent to 75% of their cash flows.

However, while total spending remains high, the growth rate is set to slow from 2025's blistering 70% year-over-year pace.

Goldman also said the funding mix may tilt toward borrowing as spending remains elevated, saying, "Capex growth in 2026 will increasingly be funded by debt issuance."

This transition will likely spur a rotation within AI stocks, shifting focus from hardware and infrastructure providers to companies leveraging AI for productivity gains — what Goldman calls "Phase 4" beneficiaries.

Concentration Risk: The Market Is Leaning On A Handful Of Giants

Goldman also flags a structural risk that's easy to ignore during strong markets: concentration.

The 10 largest stocks now account for ~41% of S&P 500 market cap and drove ~53% of the index's 2025 return, according to the report.

That means the S&P 500 is increasingly a referendum on a small set of mega-cap outcomes.

If leadership stays intact, concentration can keep working. But if leadership cracks — even briefly — the index can feel it immediately.

"The micro will drive the macro in 2026," analysts said. "Rotations among the largest stocks will create two-way risks for the aggregate index."

Can The Market Stay Expensive And Still Rise?

Goldman's call is optimistic — but not blind.

Their base case relies on a macroeconomic setup they believe is supportive: solid growth and continued Fed easing, which historically have coincided with stable-to-rising multiples.

Despite comparisons with overheated markets in 2000 and 2021, Goldman believes speculative activity is far from excessive.

IPO volumes in 2025 remained modest, short interest is high, and equity fund flows were subdued. U.S. equity mutual funds and ETFs saw net inflows of just $100 billion in 2025, equal to 0.2% of S&P 500 market cap, compared with $700 billion for bonds.

"The key macro risks today are a deterioration in the growth outlook or a hawkish shift in the interest rate environment," the investment bank said.

For investors, the message is simple: Goldman is bullish on the destination, but it does not pretend that the road is smooth.

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