SKN | Goldman Sachs Warns S&P 500 Earnings Growth May Lose Momentum

Key Takeaways:

• Goldman Sachs expects the exceptional pace of S&P 500 earnings growth to moderate as several temporary profit drivers begin to fade.
• Artificial intelligence investment is currently providing a substantial earnings tailwind, but slower capital-spending growth and rising depreciation could reduce that contribution.
• Semiconductor margins and technology investment gains represent additional areas Goldman believes could become less supportive of aggregate earnings.
• The bank’s analysis shifts attention from headline earnings growth toward the durability and quality of corporate profits.

Goldman Sachs is cautioning that the extraordinary pace of S&P 500 earnings growth may not be sustainable at its current level. The bank expects profits to continue expanding, but several temporary factors that have recently pushed earnings above their longer-term trend could become less supportive.

For sophisticated investors, the distinction matters. The issue identified by Goldman is not an immediate collapse in corporate profitability, but the possibility that earnings growth normalises after an unusually strong period. That creates a more important question for portfolios: how much of current earnings strength reflects durable operating performance versus investment cycles and temporary margin effects?

Goldman Sees Earnings Growth Returning Toward Trend

S&P 500 earnings per share increased 51% year over year in the second quarter, while growth across the past four quarters reached 26%. Goldman said that performance has lifted aggregate profits above their longer-term trend.

At the same time, the index’s forward price-to-earnings ratio has declined to approximately 19 times from 23 times a year earlier, bringing valuation back in line with its 10-year average. The combination means the bank’s concern is increasingly centered on the trajectory of earnings rather than simply the multiple investors are paying for them.

AI Capital Spending Is a Major Earnings Tailwind

Goldman identifies artificial intelligence investment as one of the most important temporary contributors to current earnings strength. Amazon, Meta Platforms, Microsoft and Alphabet are expected to spend approximately $800 billion on capital projects this year, nearly twice their 2025 level.

That spending supports revenues across technology and infrastructure ecosystems, but Goldman expects the earnings benefit to diminish as the pace of capital expenditure growth slows. At the same time, the resulting increase in depreciation expenses could place additional pressure on future profitability.

For Goldman, the significance extends beyond individual technology companies. AI investment has become large enough to influence aggregate S&P 500 earnings dynamics, making the eventual transition from rapid infrastructure spending to a more mature investment cycle increasingly important.

Margins and Investment Gains Add Another Layer of Risk

Goldman also points to semiconductor margins as a potential source of earnings normalisation. The bank estimates that weaker chip margins could reduce S&P 500 earnings by approximately 10%, illustrating how concentrated profitability improvements can influence the broader index.

Technology companies’ investment holdings provided another boost to second-quarter profits, but Goldman expects those gains to contribute less in 2027. This reinforces the bank’s broader message: investors may need to distinguish between recurring earnings power and gains generated by unusually favourable market conditions.

For global wealth holders, the implication is primarily one of earnings quality and durability. Goldman Sachs is not forecasting an earnings reversal; it is highlighting the potential for the exceptional growth phase to mature. Going forward, the bank’s assessment places greater importance on underlying operating performance, sustainable margins and the productivity generated by AI spending as the investment cycle evolves.

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