SKN | Goldman Sachs Sees S&P 500 Reaching 8,700 as Equity Valuations Become More Attractive

Key Takeaways:

• Goldman Sachs expects the S&P 500 to reach 8,700 over the next 12 months, implying more than 14% upside from its latest close of 7,592.40.
• US earnings growth is forecast to slow to 11% in 2027 from 36%, partly reflecting a potential moderation in hyperscaler capital expenditure.
• Lower valuations, declining bond yields and moderating inflation are expected to support positive equity returns despite greater market volatility.

Goldman Sachs Maintains Bullish Outlook for US Equities

Goldman Sachs expects the S&P 500 to advance to 8,700 over the next 12 months, arguing that more attractive equity valuations following a recent market selloff could support further gains despite slower corporate earnings growth.

The target represents an upside of more than 14% from the index’s latest reported close of 7,592.40.

The forecast comes after a significant decline in major technology stocks, driven by concerns about the sustainability of artificial intelligence investment and the potential slowdown in data centre construction. Political developments following the US midterm elections have added to uncertainty surrounding technology spending and broader market expectations.

Despite these pressures, Goldman Sachs believes the equity market retains sufficient support from economic growth, improved valuations and a more favorable interest-rate environment to deliver positive returns.

Earnings Growth Expected to Moderate in 2027

A central element of the bank’s outlook is the expected slowdown in corporate earnings growth.

Goldman Sachs anticipates that earnings growth across global markets could decline by at least half in 2027. In the United States, growth is expected to fall to approximately 11%, compared with 36% previously.

One potential contributor is a moderation in capital expenditure by major hyperscalers. Technology companies have been investing heavily in data centres, computing infrastructure and artificial intelligence capabilities. Any reduction in spending growth could affect earnings across the broader AI infrastructure ecosystem.

This creates a more challenging environment for companies whose valuations have been supported by expectations of sustained AI-related investment.

However, Goldman Sachs argues that slower earnings expansion does not necessarily imply negative equity returns. More attractive valuations and continued, albeit slower, economic growth could provide sufficient support for the market.

Valuations and Lower Bond Yields Support the Forecast

The recent market correction has improved the valuation picture for US equities.

The S&P 500 was trading at approximately 18.5 times its 12-month forward earnings, substantially below its recent peak of more than 23 times.

Goldman Sachs views this adjustment as an important factor supporting its positive market outlook. Lower valuations provide a more favorable starting point for investors, particularly if corporate earnings continue expanding.

The brokerage also identifies lower bond yields and moderating inflation as supportive conditions for equities. These factors could improve the relative attractiveness of stocks and help offset the impact of slower earnings growth.

Nevertheless, the bank expects market volatility to remain elevated compared with recent years, reflecting uncertainty around technology investment, corporate profitability and the broader economic outlook.

Goldman Maintains Selective Regional Equity Positioning

Goldman Sachs continues to favor certain markets over others in its regional allocation strategy.

The bank maintained an Overweight rating on US and Japanese equities, reflecting its relative preference for these markets. Asia and emerging markets remain Neutral, while Europe retains an Underweight rating.

This positioning suggests that the brokerage sees opportunities within global equities but remains selective about regional exposure as earnings expectations adjust.

The US remains central to its strategy, supported by the anticipated recovery in equity valuations and continued corporate earnings growth, even as the technology sector faces a potentially slower investment cycle.

AI Market Uncertainty Adds to Technology Sector Pressure

Concerns surrounding the artificial intelligence investment cycle have intensified following developments involving Nvidia and its reported leadership transition.

The semiconductor company has faced additional market pressure amid uncertainty surrounding its leadership and the future direction of the AI sector.

Nvidia was trading at approximately 11.7 times its 12-month forward earnings estimates, its lowest valuation multiple since February 2012, according to the figures cited.

The valuation decline illustrates how quickly market expectations can change when investor confidence in a dominant technology company comes under pressure.

For the broader AI infrastructure sector, the key question is whether investment in computing capacity and data centres can continue supporting earnings at the pace previously anticipated. A moderation in capital expenditure could create pressure across semiconductor manufacturers, equipment suppliers and other technology infrastructure businesses.

Closing Insights

Goldman Sachs’ 8,700 S&P 500 target reflects confidence that improved valuations and supportive macroeconomic conditions can outweigh a significant slowdown in earnings growth.

The expected decline in US earnings growth to 11% in 2027 represents a meaningful adjustment from the previous year’s pace. However, the brokerage believes that lower valuations, moderating inflation and reduced bond yields could provide the foundation for further equity market appreciation.

For institutional investors and wealth managers, the changing relationship between AI capital expenditure, corporate earnings and market valuations will remain a central consideration. The next phase of the equity cycle may depend less on the pace of technology investment and more on how effectively companies convert that spending into sustainable profitability.

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