J.P. Morgan has raised its forecast for the S&P 500 at the end of 2026 from 7,800 to 8,000 points. This represents around 3 per cent growth potential relative to recent levels. More important than the figure itself, however, is the reason for the revision: the bank assumes that high spending on artificial intelligence is beginning to translate more clearly into companies’ revenues and profits.
Analysts have raised their earnings-per-share forecast for companies in the index to $365 in 2026 and $420 in 2027. During the second-quarter earnings season, 85.1 per cent of the 436 reporting companies beat analysts’ expectations, well above the long-term average.
The argument that returns on investment in AI are rising is supported by the results of the largest cloud providers. In the quarter ending in June, Azure’s revenue rose by 43 per cent year-on-year, whilst AWS’s grew by 37 per cent. Microsoft also reported that its portfolio of contracted but not yet recognised commercial revenue had grown by 84 per cent.
However, this does not mean that the market has become cheap. J.P. Morgan maintains its assumed valuation multiple at around 20 times future earnings. The Fed is leaving interest rates in the 3.5–3.75 per cent range and continues to point to elevated inflation, which limits the scope for further rises in valuations.
In practice, therefore, the forecast of 8,000 points is based mainly on further earnings growth. If AI continues to boost productivity and sales, this could prolong the bull market and fuel investment in data centres, semiconductors and the energy sector. If the pace of monetisation slows, high valuations will increase the market’s sensitivity to earnings disappointments, interest rates and geopolitical tensions.
