LIVE MARKETS-Goldman says mega-cap tech to drive nearly half of S&P 500 EPS growth in 2026

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GOLDMAN SAYS MEGA-CAP TECH TO DRIVE NEARLY HALF OF S&P 500 EPS GROWTH IN 2026

The outlook for S&P 500 .SPX earnings remains upbeat, with Goldman Sachs projecting double-digit growth through 2027.

The bank expects index EPS to rise 12% in 2026 to $305 and another 10% in 2027 to $336, supported by solid U.S. GDP growth, a weaker dollar, and continued strength in mega-cap tech stocks.

Seven mega-cap names Nvidia NVDA.O, Apple AAPL.O, Microsoft MSFT.O, Alphabet GOOGL.O, Amazon AMZN.O, Broadcom AVGO.O, and Meta META.O, account for 36% of the index's market cap and 26% of earnings, says the brokerage.

In 2026, they're expected to drive 46% of EPS growth, even as gains broaden across the remaining 493 stocks. Above-average sales growth and margins in these giants provide a tailwind for aggregate profitability, especially as AI-driven productivity begins to show up in results.

AI adoption is still in its early stages, with large firms leading the way. Few companies have seen a meaningful impact on earnings so far, and Goldman expects adopters to capture just 5% of AI's potential gains in 2026 and 15% in 2027.

AI productivity is forecast to lift EPS by 0.4% in 2026 and 1.5% in 2027, though full benefits will take time, adds the brokerage.

Margin pressures remain a key risk. While consensus expects robust expansion, history suggests caution. NABE (national association for business economics) and regional Fed surveys highlight corporate concerns over input costs and pricing power, but easing tariffs and productivity gains should help.

The scorching rally in AI-linked stocks stumbled after Oracle's ORCL.N downbeat report on Thursday, rekindling fears of frothy valuations and a looming bubble. Still, many investors see the case for AI as strong and remain hesitant to call a peak.

Goldman Sachs highlight sectors like Industrials, Materials, and Consumer Discretionary stand to benefit from faster growth, while energy faces pressure from lower oil prices.

Overall, strong earnings should support higher S&P 500 levels, with the index potentially reaching 7,600 in 2026, according to Goldman.

(Kanishka Ajmera)

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