Goldman Sachs strategist Ben Snider is pushing back on the idea that today’s sky-high corporate profits are a “bubble” about to pop.
Yes, earnings are growing much faster than normal — up 51% year over year in Q2 and 26% over the past year — and valuations (CAPE ratio) are near dot-com-era highs. That combination sounds alarming, like 2000 all over again.
Yet, the bank sees the surge as an orderly cyclical peak rather than an impending crash.
“Our base case is for S&P 500 earnings growth to decelerate, not collapse, in coming years,” strategist Ben Snider wrote in a client note.
Valuations Tell a Split Story
The cyclically adjusted price-to-earnings ratio sits near record highs, a level topped in recent decades only at the dot-com peak. Yet the forward 12-month multiple has slid to 19x from 23x a year ago, matching its 10-year average.
“Market pricing embeds an outlook for continued earnings growth but healthy skepticism regarding the sustainability of current profitability,” Snider said.
Goldman set a 12-month S&P 500 target of 8,700, implying a 14% return, and expects EPS to climb 11% in both 2027 and 2028, to $415 and $460, respectively. That is more cautious than consensus, which Bloomberg Intelligence data show calling for 19% and 17% growth.
Solid GDP expansion and a 1-2 percentage-point productivity boost from AI adoption support the outlook.
“Our 12-month S&P 500 return forecast of +14% (to 8,700) reflects the view that earnings growth, rather than expanding valuations, will remain the primary driver of the bull market,” Snider concluded.
3 Temporary Dynamics
First, consider the hyperscaler capex wave. Amazon (NASDAQ:AMZN), Meta (NASDAQ:META), Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) are on track to spend $800 billion in 2026, up 94% from 2025. The AI investment boom accounts for nearly half of this year’s index EPS growth. Goldman expects that tailwind to shrink from an 11 percentage-point boost today to a marginal drag by 2028 as spending growth slows and depreciation mounts.
Second, memory makers are posting gross margins near 80%. That’s more than double their historical average, with margin expansion driving about a quarter of chip-sector earnings growth in 2026. Should industry gross margins fall from 70% to their 15-year average of 55%, Goldman estimates S&P 500 earnings would take a roughly 10% hit.
Third, there is non-operating income. Mega-cap tech booked more than $150 billion in “other income” from private investment gains in the second quarter alone, equal to 12% of index EPS. Goldman expects that contribution to fade, creating an 8 percentage-point drag on 2027 growth comparisons.
The Risk: AI’s Circular Financing
Hyperscalers, chipmakers and model developers are increasingly one another’s customers, suppliers and investors, so a single disappointment could ripple across the group.
Amazon’s $53.4 billion in other income last quarter came largely from Anthropic-related gains, and Nvidia has disclosed over $108 billion in maximum guarantee exposure to ecosystem partners.
Bank of America strategists Jared Woodard and Michael Hartnett warned positioning is too bullish given slowing profit growth, even as equity funds pulled in nearly $64 billion last week, the strongest inflow in three months.
Goldman Expects Gradual Cooling, Not a Crash
The firm expects the over-earning phase to subside, as baseline demand replaces initial buildout tailwinds.
Whether newly built AI capacity earns above its cost of capital remains to be seen.
Image created using artificial intelligence via Gemini.
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