Goldman Sachs calls the market too conservative! AI spending in 2027 may soar to $1.4 trillion, supporting the S&P 500 to target 8000 points by the end of the year.

Strategists at Goldman Sachs Group, Inc. said that analysts' expectations for next year's artificial intelligence spending are too conservative. Goldman Sachs Group, Inc. expects stocks related to this theme to further rise. Led by Ryan Hammond, the team of strategists believes that capital spending by mega corporations could soar to as high as $1.4 trillion in 2027, supported by strong cash flow and increased investment-grade debt financing. In comparison, analysts currently expect around $920 billion. The strategists noted that the increase in investment will further support profit growth for AI infrastructure companies. Despite the significant rebound in the sector's stock prices, the team believes that these gains are primarily driven by improving earnings expectations. Goldman Sachs Group, Inc. predicts that AI capital spending by mega-scale data center operators will exceed $1 trillion. Oracle Corporation (ORCL.US) saw its stock price drop over 8% on Thursday, after the company announced quarterly capital spending exceeding expectations, much of which was used for data center construction. While Oracle Corporation's capital expenditure figures raised concerns among investors, they also spurred gains in chip manufacturers and other AI infrastructure concept stocks. The Goldman Sachs Group, Inc. team pointed out that market concerns about valuation are rising. The median price-to-earnings ratio for AI infrastructure companies has risen to 26 times, the highest level since the launch of ChatGPT by OpenAI at the end of 2022. However, they also noted that recent valuation reassessments have focused primarily on semiconductor and power-related companies outside of utilities, rather than mega-corporations or storage chip stocks. In another report on the highly anticipated IPO of SpaceX, Hammond's colleague and Goldman Sachs Group, Inc.'s Chief U.S. Stock Strategist Ben Snyder stated that the record amount of new U.S. stocks is unlikely to disrupt the current bull market. Based on continued earnings growth, he reiterated the year-end target of 8000 points for the S&P 500 index.