Key facts
- The AI investment boom has accounted for nearly half of S&P 500 earnings growth this year.
- Goldman Sachs strategists expect this tailwind to begin fading next year.
- Slowing AI infrastructure investment, increasing supply, or technological shifts could lower semiconductor prices and profit margins.
- A significant reduction in 'other income' from private investments is expected to drag S&P 500 earnings growth in 2027.
Wall Street has been buoyed by upbeat earnings this year, largely driven by the technology sector. However, Goldman Sachs strategists believe this momentum may not last, with the AI investment boom expected to contribute less to S&P 500 earnings growth in the coming year.
According to Ben Snider, the bank's chief US equity strategist, the AI investment boom has been responsible for nearly half of the S&P 500's earnings growth in the current year. He anticipates that this positive influence will begin to wane next year, even if capital expenditure continues to rise.
Snider's analysis suggests that a potential decline in semiconductor profit margins, driven by factors such as increasing supply or technological shifts, could lead to disappointing earnings per share growth for the S&P 500. While industry analysts expect supply to remain tight through 2027, the rate of margin expansion is projected to slow next year.
Furthermore, Goldman Sachs points to income generated from private investments as another factor that has fueled Big Tech's earnings. However, the bank expects a significantly smaller contribution from this source in 2027. The complete removal of this 'other income' is projected to create an 8 percentage point drag on S&P 500 earnings growth in 2027 compared to 2026.