Goldman Sachs expects corporate profit growth to slow. Why isn't it worried about a bubble?

A team of strategists at Goldman Sachs has predicted that earnings growth for S&P 500 companies will slow due to investments in artificial intelligence as early as 2027, according to Bloomberg. But that doesn’t mean the “profit bubble” will burst soon: the bank believes concerns on this front are overblown.

A Goldman Sachs team led by Ben Snyder stated that it expects earnings growth for S&P 500 companies to slow in the coming years, rather than plummet. The bank expects an 11% increase next year, which appears somewhat more conservative compared to the consensus forecast, which projects growth of 19% and 17% in 2027 and 2028, respectively, according to data from Bloomberg Intelligence. However, in the first and second quarters of 2026, earnings jumped by approximately 30% in each quarter—one of the best performances on record, the agency noted.

Goldman believes that the profitability of U.S. companies is supported by an optimistic outlook on the country’s economy and the artificial intelligence boom, meaning that concerns about a bubble are overblown. Current profit growth rates indicate that companies are generating excess returns amid a surge in AI investment. However, “market valuations reflect a healthy dose of skepticism regarding the sustainability of current profitability,” according to Goldman Sachs analysts.

Goldman Sachs expects the S&P 500 index to rise 14% next year—to approximately 8,700 points.

Bank of America strategists, including Jared Woodard and Michael Hartnett, believe that investors are positioning their portfolios with excessive optimism given forecasts of a slowdown in earnings growth, Bloomberg reports. According to BofA, citing EPFR Global, U.S. equity funds attracted nearly $64 billion over the week, marking the highest inflow in three months.

Wall Street banks are discussing risks over a shorter time horizon. Specifically, Wells Fargo lowered its year-end target for the S&P 500 from 7,950 to 7,700 points, which is only 72 points above the closing level on September 17. Bank of America, on the other hand, raised its forecast from 7,100 to 7,400 points, which is below the current level.

Snyder was one of the most optimistic experts at the beginning of the year. He correctly predicted that strong financial results and the adoption of AI would offset the effects of rising oil prices and higher interest rates, keeping the market in a bull trend, according to Bloomberg.

This article was AI-translated and verified by a human editor