Investing.com — Goldman Sachs said record corporate profitability has helped support elevated U.S. equity valuations, although the artificial intelligence spending boom could weigh on returns for mega-cap technology companies in the coming years.<\/p>\n
The bank noted that the S&P 500 has gained 9% year-to-date, driven primarily by stronger earnings expectations rather than valuation expansion. The index currently trades at 21 times forward earnings, a level that ranks well above its historical average.<\/p>\n
According to the report, S&P 500 return on equity (ROE) reached a record 22% in the first quarter of 2026, surpassing the previous peak set in 2021.<\/p>\n
Rising profit margins have been a key driver of the increase. The report also highlighted the growing influence of mega-cap technology companies, whose collective ROE stands at 44%.<\/p>\n
The seven largest technology companies, including Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta Platforms, and Broadcom, have expanded their combined ROE by nine percentage points over the past three years.<\/p>\n
Despite that strength, the report said the AI infrastructure buildout is likely to create new profitability pressures.<\/p>\n
Analysts expect ROE across the largest technology companies to decline by an average of seven percentage points next year as spending on data centers, computing infrastructure, and AI-related assets continues to accelerate.<\/p>\n
The report said hyperscale technology companies are becoming increasingly asset-intensive as they expand capacity to support AI workloads.<\/p>\n
Depreciation and amortization expenses are projected to rise from 7% of revenue in 2022 to roughly 12% by 2027. Companies are also relying more heavily on debt and equity financing to fund investment plans.<\/p>\n
Consensus estimates suggest major hyperscalers will spend about $770 billion on capital expenditures in 2026, equivalent to roughly 100% of their operating cash flow.<\/p>\n
Still, the report maintained a positive long-term view on AI\u2019s impact on corporate profitability. Productivity gains from AI adoption could eventually boost sales, earnings per employee, and profit margins across a wide range of industries.<\/p>\n
The analysts added that semiconductor companies remain among the biggest beneficiaries of the AI spending cycle, supported by strong pricing power and elevated margins.<\/p>\n
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Goldman looks at the impact of the AI capex boom on S&P 500 return on equity<\/a><\/p>\n JPMorgan outlines ten strategic themes that could shape the outlook for 2026<\/a><\/p>\n