Not a bubble, just a very loud cycle
Goldman Sachs is basically telling Wall Street to chill. Yes, S&P 500 earnings are ripping higher — up 51% year over year in Q2 — and yes, valuations are flashing a little “late-90s” energy. But strategist Ben Snider says the base case is a slowdown, not a face-plant.
The firm’s message: this looks more like an orderly peak in profitability than the opening scene of a market horror movie. In other words, the corporate profit party may be getting quieter, but Goldman doesn’t think someone’s about to kick over the punch bowl.
The AI boom is doing a lot of heavy lifting
A big chunk of this year’s index earnings strength is tied to the hyperscaler spending spree. Amazon, Alphabet, Meta, and Microsoft are on track to spend around $800 billion in 2026, nearly double 2025 levels.
That matters because Goldman says:
- AI investment is contributing nearly half of this year’s S&P EPS growth
- the tailwind should shrink as depreciation and slower capex growth kick in
- by 2028, that boost could flip into a slight drag
So if you’ve been treating AI capex like a one-way rocket ship, Goldman’s basically saying: rockets eventually need refueling.
Three things making profits look extra shiny
Goldman also points to a few temporary boosts that make earnings look better than they may be long term:
- Memory chip margins are huge. Some makers are posting gross margins near 80%, far above normal.
- “Other income” is juicing results. Mega-cap tech booked more than $150 billion in investment gains in Q2 alone.
- AI circularity is real. Hyperscalers, chipmakers, and model developers are increasingly buying from, investing in, and lending credibility to each other.
That last part is the one that should make investors squint a little. When everyone in the ecosystem is both customer and supplier, one stumble can echo pretty loudly.
Big picture
Goldman’s not calling for doom. It’s calling for gravity. The bank expects earnings growth to cool off, not collapse, and says stocks can still grind higher if profits keep doing the work. The catch? If AI spending slows or margins normalize faster than expected, some of today’s extra sparkle could vanish. In market-speak: fewer vibes, more math.