J.P. Morgan raised its year-end target for the S&P 500 index to 8,000 from 7,800 on Monday, citing prospects of solid corporate earnings and rising confidence that AI investments by large hyperscalers would drive faster revenue growth. The new target implies about 3.1% upside from the index's last close of 7,757.64 and adds to a growing wave of bullish calls, with at least seven brokerages now expecting the benchmark to reach the 8,000 level by 2026-end. The revision comes on the back of strong corporate earnings and optimism regarding AI investments by major tech companies, with J.P. Morgan noting that the conversion of backlogs into recognized revenue will sustain cloud growth and further justify rising AI capital expenditures. According to J.P. Morgan analysts, elevated backlogs are converting into recognized revenue, supporting cloud growth and helping justify rising AI capital expenditure, while this trend is strengthening order coverage and easing concerns about return on invested capital.
The brokerage also revised its S&P 500 earnings-per-share forecasts to $365 for 2026 and to $420 for 2027. As reported by Reuters, J.P. Morgan had earlier expected $350 for 2026 and $390 for 2027. The benefits of rising AI investments were clearer in the second quarter, especially at Google, Amazon and Microsoft, as strong cloud growth, larger backlogs and better cash-flow visibility eased investor concerns about returns on spending. According to J.P. Morgan, as elevated backlogs convert into recognized revenue, cloud growth should remain well supported, helping validate rising AI capex, strengthen order coverage, and further ease ROIC (return on invested capital) concerns. The brokerage also lifted its S&P 500 earnings-per-share forecasts to $365 for 2026 from $350 and to $420 for 2027 from $390.
Of the 436 S&P 500 companies that had reported June-quarter results through Friday morning, 85.1% beat analyst expectations, according to LSEG data, well above the long-term average of 68% since 1994. According to reports from Reuters, J.P. Morgan analysts noted that "as elevated backlogs convert into recognized revenue, cloud growth should remain well supported, helping validate rising AI capex, strengthen order coverage, and further ease ROIC (return on invested capital) concerns." The strong earnings performance has reinforced investor confidence in the AI sector's growth trajectory and validated the increased capital expenditure by major technology companies. The latest earnings season has particularly confirmed that the massive investments in artificial intelligence spending by the largest technology companies are justified, as reported by CNBC TV18. Despite the stronger earnings backdrop, the bank kept its forward valuation multiple target at about 20 times, citing higher interest rates, geopolitical risks and heavy equity and debt issuance as constraints on further valuation expansion.
The S&P 500 has gained 13.3% so far this year, supported by optimism around AI and resilient corporate earnings. However, market analysts are warning of emerging complacency risks. As reported by Bloomberg, hedging demand has sunk to lows last seen after President Donald Trump's tariff retreat in 2025, with the one-month put-to-call skew sitting at a 16-month low. "Demand for protection against a drop in stocks has fallen to the lowest level since US President Donald Trump's capitulation on tariffs last year, as indexes rally to record highs," Bloomberg analysts noted. The S&P 500 dividend yield fell to 1.04%, the lowest ever recorded, which is less than half its long-run average near 2.81%. Despite raising its index target, J.P. Morgan maintained its forward valuation multiple target at about 20 times, citing higher interest rates, geopolitical risks and a large supply of equity and debt issuance as constraints on further valuation expansion. Markets remain sensitive to geopolitical developments, with uncertainty surrounding the reopening of the Strait of Hormuz and diplomatic talks involving Iran, Oman and the United States continuing to weigh on oil prices and global shipping conditions.
