Wells Fargo has significantly raised its year-end 2026 target for the S&P 500 index this week, asserting that artificial intelligence-fueled earnings growth is robust enough to counterbalance macroeconomic concerns like inflation, providing a solid foundation for the market.
The bank has lifted its S&P 500 year-end target to 7,950 points from 7,007, representing approximately 5% upside from Monday's closing level. It has also increased its earnings per share forecast for S&P 500 constituents in 2026 to $340, up from a prior estimate of $315. The forecast for 2027 has been raised to $390 from $365.
Wells Fargo's head of global equities and real assets noted that first-quarter S&P 500 earnings grew by about 28% year-over-year, marking the strongest performance since 2021. He believes the pace of AI infrastructure development is exceeding expectations, with analysts playing catch-up, and expects this trend to continue driving earnings growth in the near term. He further stated that investors currently do not need to choose between quality and growth stocks, as large- and mid-cap U.S. stocks are showing superior earnings growth and healthier balance sheets compared to small caps.
Wells Fargo acknowledges that inflation remains the primary risk for equities but contends that a market downturn would likely only occur if the Federal Reserve adopts aggressive tightening measures. If the Fed allows the economy to run hot, stocks could potentially serve as an effective hedge against inflation. Additionally, recent market pullbacks have tempered investor sentiment from overheated levels back to neutral, creating fresh buying opportunities in AI-related sectors. The bank is particularly bullish on semiconductor and AI infrastructure stocks, viewing the ongoing expansion of capital expenditures by major cloud service providers as a significant positive catalyst.
Other institutions share a similar view. Goldman Sachs Research also projects 2026 S&P 500 earnings at $340 per share, expecting them to climb further to $385 in 2027. However, Goldman Sachs also cautions that narrowing market breadth and rapidly rising momentum indicators are warning signs worth monitoring, suggesting investors consider diversifying their portfolios beyond AI infrastructure stocks.
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