Corporate earnings are growing much faster than the economy. What Goldman strategists say about bubble concerns.

By Nora Redmond

EPS growth will slow but not collapse, says Wall Street firm.

Goldman Sachs forecast S&P 500 earnings per share growth of 11% year-on-year in 2027 and 2028.

Corporate earnings can continue to grow even if not at the rapid pace they have improved this year, a leading Wall Street firm says.

Goldman Sachs holds that the S&P 500 is not in an "earnings bubble" - but the New York-headquartered investment bank has pointed to signs of "over-earning."

Earnings per share in the stock index grew by 51% in the second quarter year-on-year and by 26% during the previous four quarters, bringing EPS higher than the long-term average as well as its prior correlation with economic growth. This strength has worried investors about the potential for an "earnings bubble," a team at Goldman, led by Ben Snider, chief U.S. equity strategist, wrote in a note.

"While there are indeed factors contributing to 'over-earning' today, our base case is for S&P 500 earnings growth to decelerate, not collapse, in coming years," they said.

The bank forecasts EPS growth of 11% year-on-year in 2027 to $415 and in 2028 to $460, respectively. The team noted that the primary drivers of this trend are expected to be accelerating gross domestic product growth and the transition from investment into artificial intelligence to a gradual boost from AI productivity.

They see AI investment changing from a tailwind for S&P 500 earnings of 11 percentage points this year to a "marginal drag" in 2028 as capital expenditure growth slows and depreciation costs loom.

"The recent surge in semiconductor profit margins also leaves S&P 500 earnings vulnerable to a decline in chip prices," the team said, adding that in a scenario where semiconductor companies' gross margins slump from a current level of 70% to their 15-year average of 55%, S&P 500 earnings would reduce by about 10%.

The strategists said that energy prices and interest rates present risks in the near-term to their forecasts for the S&P 500's EPS, but AI remains the most significant question in the long-term.

Appreciating equity investments among technology giants has also temporarily contributed to S&P 500 earnings, they wrote, which are expected to slow next year.

-Nora Redmond

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09-21-26 0613ET