Goldman Sachs Sees Strong Corporate Earnings Growth Continuing, Dismisses Bubble Fears

Despite record S&P 500 profit surges driven by AI and semiconductor sectors, Goldman strategists forecast earnings growth will slow but remain robust through 2028

Corporate earnings in the United States are expanding at a pace far exceeding overall economic growth, fuelled by significant investments in artificial intelligence (AI) and elevated profit margins in the semiconductor industry. However, Goldman Sachs strategists, led by Ben Snider, caution that while earnings appear to be “over-earning,” the market is not experiencing an earnings bubble. Instead, they forecast a deceleration in profit growth rather than a collapse, with earnings per share (EPS) for the S&P 500 expected to rise by approximately 11% in both 2027 and 2028.

Exceptional Earnings Growth in 2026

Data from multiple sources confirm that S&P 500 companies reported extraordinary earnings growth in 2026. FactSet reported a blended year-over-year earnings growth rate of 47.4% for the second quarter of 2026, the highest since the post-pandemic rebound in 2021. Goldman Sachs’ internal data suggest a slightly higher figure of around 51% year-over-year EPS growth for the same period, marking one of the strongest earnings performances in the past three decades, surpassed only by rebounds following recessions in 2010 and 2021.

Much of this surge is attributed to three key factors: massive AI-related capital expenditure, record-high semiconductor profit margins, and substantial gains recorded as “other income” from private investments by large technology companies. For instance, major technology firms are estimated to have increased capital spending by nearly 94% in 2026 compared to 2025, with total AI-related investments approaching $800 billion. These investments alone account for nearly half of the projected earnings growth for the year.

Drivers Behind the Earnings Surge

The AI boom has been a significant catalyst for corporate profitability. Goldman Sachs analysts highlight that hyperscale AI infrastructure spending contributed an estimated 11 percentage points to S&P 500 earnings growth in 2026. However, this boost is expected to diminish sharply, turning into a slight drag by 2028 as the initial wave of AI capital expenditure normalises.

Semiconductor companies have also enjoyed peak profit margins, which have bolstered overall earnings. Yet, Goldman strategists anticipate these margins will moderate in the coming years, reducing their contribution to earnings growth. Additionally, large technology firms have benefited from accounting gains related to private equity investments, which generated more than $150 billion in “other income” in the second quarter of 2026, equating to about 12% of total S&P 500 earnings. This source of income is also expected to decline in 2027.

Outlook for 2027 and 2028

Goldman Sachs projects EPS for the S&P 500 to reach approximately $415 in 2027 and $460 in 2028, representing about 11% growth each year. This forecast is more cautious than some consensus estimates, which anticipate higher growth rates of 17% to 19% for those years. The strategists emphasise that while the pace of earnings growth will slow, it will remain healthy, supported by ongoing economic expansion and productivity gains from AI adoption.

Ben Snider and his team expect the S&P 500 index to rise by roughly 14% over the next 12 months to a target level near 8,700 points. Importantly, this anticipated gain is attributed primarily to earnings growth rather than an expansion in valuation multiples, which have already contracted from elevated levels seen a year ago to align with their 10-year average.

Market Valuations and Investor Sentiment

Despite the strong earnings backdrop, US stock valuations have softened since reaching record highs in August 2026, largely due to inflation concerns and monetary policy tightening. The forward price-to-earnings (P/E) ratio for the S&P 500 stands at about 19 times earnings, down from 23 times a year earlier and close to the decade-long average.

Investor positioning remains notably bullish, with US stock funds attracting nearly $64 billion in weekly inflows recently, the largest in three months. Some strategists, including those at Bank of America, caution that this optimism may be excessive given the prospect of slower profit growth ahead.

Context and Caveats

While the Goldman Sachs analysis provides a detailed outlook, it is important to note that their earnings growth forecasts are forward-looking estimates based on assumptions about AI-driven productivity gains and broader economic conditions. The sustainability of the recent earnings surge depends on how these factors evolve, and the fading of temporary boosts such as AI capital expenditure and private investment income could moderate future growth.

Moreover, the conclusion that the market is not in an earnings bubble reflects an analytical judgment by Goldman Sachs strategists and may not represent a consensus view among all investors or analysts. The precise magnitude and durability of AI-related productivity improvements remain uncertain, and the full research report from Goldman Sachs is not publicly available for independent verification of methodology and assumptions.

Conclusion

In summary, US corporate earnings have surged to levels well above long-term trends, driven by transformative AI investments and strong semiconductor sector performance. Goldman Sachs strategists acknowledge signs of “over-earning” but do not see evidence of a bubble. They forecast that earnings growth will moderate but continue robustly through 2027 and 2028, supporting a further rise in the S&P 500 index primarily through profit gains rather than valuation expansion. Investors should, however, remain mindful of the uncertainties surrounding the sustainability of these earnings drivers and the broader economic environment.