Wall Street has cheered upbeat earnings this year, fueled by strong growth in tech, but the investors shouldn’t count on the strong momentum lasting much longer, Goldman Sachs says.
Ben Snider, the bank’s chief US equity strategist, recently laid out his team’s thesis on how AI growth is likely to impact the market in the coming year. Even if capex spending stays strong, he’s not convinced it will be enough to sustain this year’s positive momentum.
“The AI investment boom has accounted for nearly half of S&P 500 earnings growth this year, and this tailwind should begin to fade next year even as capex spending continues to grow,” Snider wrote in a note to investors on Thursday.
Snider told Business Insider in July that investors should double down on popular AI infrastructure stocks, citing a bullish stance on the data center boom. Yet, as he looks beyond 2026, his latest view indicates that AI spending may be masking a more difficult reality for markets.
Snider’s focus is not on the notion that the AI bubble is likely to burst in the near future. Rather, his base case centers on the likelihood of S&P 500 earnings growth slowing down significantly over the next two years, partially because of problems ahead for chipmakers, which have been major beneficiaries of the AI spending by Big Tech firms.
“The recent surge in semiconductor profit margins leaves S&P 500 earnings vulnerable to a decline in chip prices,” Snider stated. “Our industry analysts expect supply to remain tight through 2027 but for the rate of margin expansion to slow next year.”
Chip stocks have been a significant growth driver for the S&P 500 since the AI boom began in late 2022, surging on the combination of extremely high demand and limited supply. Others have said recently that surging chip costs could be problematic for the AI trade.
Goldman previously predicted that the US would shoulder the brunt of a global AI-driven inflation surge, noting that AI chip prices were already troublingly high.
Now, the possibility of cooling chip margins threatens to compromise the momentum that powered the AI trade in 2026.
“In a scenario where slowing AI infrastructure investment, increasing supply, and/or technological shift lowers semiconductor prices and profit margins, S&P 500 EPS growth would also disappoint,” Snider noted.
Snider also highlighted another factor that’s helped fuel Big Tech’s earnings growth, one that is likely to contribute to the deceleration that his team sees coming: income companies have earned from private investments.
While these paper gains can be considered income, that doesn’t mean that the company has actually generated any cash from them.
“We expect a much smaller contribution in 2027. The complete removal of this ‘other income’ next year would create a drag of 8 pp on S&P 500 earnings growth in 2027 relative to 2026, all else equal,” Snider added.
