S&P 500 could reach 9,000 points before AI bubble bursts - Evercore ISI

The stock market could be on the verge of a "twice-in-a-lifetime bull rally" that could lift the S&P 500 Index by 40% by the end of next year in an optimistic scenario, said Evercore ISI analyst Julian Emanuel. His new forecast for 2026 is the most optimistic on Wall Street so far, while expectations for the current year were recently the most pessimistic. At the same time, Emanuel warned that the "artificial intelligence revolution" is likely to end in a bubble.

Evercore ISI's base case scenario assumes the main U.S. S&P 500 index will rise more than 21% from its current level to 7,750 points by the end of 2026, Barron's said, citing a note from analyst Julian Emanuel. That's the highest target on Wall Street, according to Barron's.

But the Evercore ISI's optimistic scenario sets the bar even higher. The combination of a stable economy, tax relief under Donald Trump's "Big Beautiful Law" and reduced uncertainty in trade agreements could awaken a "spirit of cheerfulness" in investors and drive the index to 9,000 points by the end of next year, Emanuel argues. That's a 40% increase from where it is now.

The purported benefits of artificial intelligence amid the US Federal Reserve's policy easing are setting the stage for further gains in tech stocks and the broader market, but this could lead to "the biggest bubble in history", Emmanuel warned. "We expect the AI revolution, like the internet revolution before it, to end in a bubble," he wrote. - "But before the bubble inflates and eventually bursts, this bull market will face a period of 'rational enthusiasm'."

"AI is more than just the Internet. In just three years, its impact has affected all areas of society and industry, although its adoption is just beginning to gain momentum," emphasized the Evercore ISI analyst.

Emanuel raised his baseline forecast for the S&P 500 for 2025 to 6,250 points. This is 650 points higher than his previous estimate, which was the most pessimistic on Wall Street, but also implies a 2% pullback in the index from the current level. According to the analyst, such pullbacks are typical of a long-term bull market.

"Short-term volatility ahead is a buying opportunity, not the start of a bear market," Emanuel said.

Before the traditional weak September for Wall Street, U.S. stocks rose for four months in a row, setting one record after another thanks to optimism about high corporate earnings and hopes for an imminent cut in U.S. interest rates. Big tech remains the main driver of the Wall Street rally, with shares of tech giants Nvidia, Meta Platforms and Microsoft up more than 20% this year, Bloomberg notes.

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