Goldman Sachs said the S&P 500 has continued climbing to record levels as stronger corporate earnings and upward revisions to profit forecasts fuel investor confidence. The benchmark index has advanced 8% so far this year through Monday.
First-quarter earnings season delivered robust results, with S&P 500 companies posting 17% year-over-year earnings-per-share growth after excluding certain one-off items.
The market rally has coincided with a 13% increase in forward 12-month EPS estimates, even as the index’s price-to-earnings ratio has contracted by 4%.
Corporate America Shifts Focus Toward Investment Spending
Goldman noted a major shift in corporate capital allocation trends during the first quarter.
Capital expenditures among S&P 500 companies surged 38% year-over-year, sharply outpacing the 1% increase in share buybacks.
The bank expects that divergence to continue through 2026, forecasting capex growth of 33% to roughly $2 trillion, while buybacks are projected to rise just 3% to approximately $1 trillion.
AI Infrastructure Spending Continues to Lead
Large AI-focused technology companies remain the primary drivers behind the increase in investment spending.
Goldman estimates that AI hyperscalers alone could spend around $755 billion in 2026 as companies continue building out infrastructure tied to artificial intelligence.
The investment trend, however, is no longer limited to technology, with higher spending spreading across most sectors of the economy.
Investors Favor Growth Investment Over Cash Returns
According to Goldman Sachs, investors have increasingly rewarded companies prioritizing long-term growth investments rather than simply returning cash to shareholders.
That trend has been especially visible among AI-related stocks.
The bank also said the economic and policy uncertainty created by the ongoing war has helped reverse the market rotation away from high-quality companies that dominated much of 2025.
Premium Valuations Expected to Persist
Goldman expects investors to continue favoring businesses investing in long-term structural growth opportunities, although geopolitical developments and the evolution of AI demand could influence how markets assess returns on current spending.
At the same time, the firm believes companies with strong balance sheets and shareholder return programs should continue commanding premium valuations.
The bank added that slower buyback growth may reinforce a scarcity premium for companies actively returning capital to shareholders, while rising borrowing costs are likely to further support companies with stronger financial positions.