US Equity Views Over earning, but not an earnings bubble

Portfolio Strategy Research 17 September 2026 | 5:40PM EDT

Over-earning, but not an earnings bubble

The recent strength of S&P 500 earnings growth has raised investor concerns Ben Snider | that the market is in an “earnings bubble.” S&P 500 EPS grew by 51% in Q2 and by Goldman Sachs & Co. LLC

26% during the past four quarters, lifting earnings well above both the long-term Ryan Hammond | trend and the historical relationship with economic growth. The S&P 500 forward P/E Goldman Sachs & Co. LLC multiple sits at 19x, in line with its 10-year average, but the market multiple on trend earnings has only been exceeded in the past several decades during the peak of the Daniel Chavez | Dot-Com Bubble. Goldman Sachs & Co. LLC

While there are indeed factors contributing to “over-earning” today, our base Kartik Jayachandran | case is for S&P 500 earnings growth to decelerate, not collapse, in coming years. Goldman Sachs & Co. LLC We forecast EPS growth of 11% in both 2027 (to $415) and 2028 ($460), driven by Christophe Sung solid GDP growth and a fading tailwind from AI investment that gradually transitions | into a growing boost from AI productivity. Energy prices and interest rates create Goldman Sachs & Co. LLC

near-term macro risks around these forecasts, but the impact of AI is the biggest long-term question for corporate earnings.

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. We estimate AI investment will transition from an S&P 500 earnings tailwind of 11 pp this year to a marginal drag in 2028 as capex growth slows and depreciation expenses mount. AI capex has repeatedly exceeded estimates during the last few years, and we outline upside and downside scenarios and their impact on S&P 500 profits.

The recent surge in semiconductor profit margins also leaves S&P 500 earnings vulnerable to a decline in chip prices. Our industry analysts expect supply to remain tight through 2027 but for the rate of margin expansion to slow next year. An adverse scenario where semiconductor gross margins decline from 70% today to their 15-year average of 55% would cut S&P 500 earnings by roughly 10%.

Appreciating equity stakes are also temporarily inflating S&P 500 earnings. The mega-cap tech companies generated over $150 billion of “other income” related to equity investments in Q2 2026, lifting S&P 500 earnings by 12%. We expect additional “other income” in H2 2026, but these accounting earnings should diminish in 2027. Excluding this income from 2026, our 2027 EPS forecast would reflect growth of 18%.

Market pricing embeds an outlook for continued earnings growth but healthy skepticism regarding the sustainability of current profitability. S&P 500 and

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semiconductor share prices have recently lagged the trajectory of near-term EPS estimates. Similarly, the market trades at a P/E discount relative to what a macro model would imply given the current level of corporate profitability. Our 12-month S&P 500 return forecast of +14% (to 8,700) reflects the view that earnings growth, rather than expanding valuations, will remain the primary driver of the bull market.