Even as the US benchmark ticks towards 8,000, the full potential of the artificial intelligence boom still appears to be undervalued on Wall Street. 

Against the backdrop of exceptionally high levels of geopolitical uncertainty, inflation uncertainty, and intense competition from technological superpowers like China, the S&P 500’s AI-driven gains shifted into unprecedented territory once again in August as a positive Q2 earnings season helped to shake off investor capex fears. 

The recent earnings season was billed as a major test of investor confidence in the scale of the AI boom, with spending among leading hyperscalers like Alphabet (GOOG), Amazon (AMZN), Microsoft (MSFT), and Meta (META) alone set to reach a collective $725 billion in 2026, up 77% from last year’s record outlay. 

As one of the first companies to report their Q2 earnings, Google parent Alphabet tumbled 6% as investors fretted over a capex increase by $15 billion at the midway point to between $195 billion and $205 billion. 

But in the weeks that have followed, the entire index has been boosted by a series of record-breaking performances that have helped to drive confidence back towards AI leaders on Wall Street. 

Earnings were always going to need to shine for the Magnificent Seven and beyond and they’ve worked wonders in driving the S&P 500 higher. Earnings for the quarter are currently on pace to grow 49% year-over-year, a rate that hasn’t been reached since the second quarter 2021. 

But could the early fears over Alphabet spending be an example of investors still underestimating the potential of AI, and its full impact on the S&P 500 over the years ahead? Q2 earnings season may simply represent the latest reminder that the artificial intelligence boom has plenty more distance to run. 

Factoring AI Growth into the S&P 500

The recent show of strength for the S&P 500 has inspired JPMorgan analysts to once again raise their year-end forecasts for the benchmark, increasing their projection to reach 8,000, up from 7,800. 

But 8,000 may just be the start as far as the value driven by long-term AI adoption is concerned. Although markets have factored in near-term infrastructure costs and immediate tech winners, the widespread productivity gains, macroeconomic restructuring, and second-order sector transformations could all still make significant contributions to the index over time. 

Morgan Stanley insights suggest that the artificial intelligence boom could add between $13 trillion and $16 trillion in long-term market value to the S&P 500, which would translate into an approximate 29% surge in the index’s overall market capitalization. 

While these figures are largely speculative, they would translate into tangible growth for the businesses adopting the technology. 

Today, although AI activity is continuing to rise, bottom-line results remain stagnant, because activity and impact are still far from becoming aligned. Once these adopters develop the operational foundation to support their artificial intelligence onboarding, we can begin to see more companies reap the rewards of AI transformation. 

The Case for 9,000

JPMorgan analysts may be targeting 8,000 for the S&P 500 by the end of 2026, but Evercore ISI strategist Julian Emanuel has anticipated that if the AI frenzy mirrors the internet boom of the late 1990s then 9,000 could soon be within reach for the index. 

However, Emanuel has also warned that such exponential growth would be accompanied by large 10% market corrections along the way, but an accommodative Federal Reserve could help to shrug off inflation pressures for the S&P 500, making artificial intelligence a driving force for growth looking ahead. 

Given that the World Economic Forum (WEF) has estimated that AI could contribute up to 14% of global GDP by 2030, equivalent to around $15.7 trillion, there’s the possibility that the technology could have the potential to surpass the heights reached three decades ago in terms of growth. 

However, with global AI investments forecast to exceed $1 trillion this year, it’s clear that the cat’s very much out of the bag in terms of the would-be adopters that are buying into its potential. This far greater level of spending could yet produce some unpredictable ramifications for capex on Wall Street, so it’s worth investors researching fundamentals as a priority. 

Headwinds Could Still be Decisive 

It’s also important to note that headwinds could still disrupt the S&P 500’s road to 8,000 and 9,000, with the war in Iran, inflation challenges, and the Fed’s upcoming interest rate decision all possible causes of anxiety. 

Although the full scale of the AI boom hasn’t been factored into the S&P 500 yet, it doesn’t mean that investing today will guarantee a piece of a 29% increase in the index’s market capitalization. 

However, it’s fair to say that the available data shows that artificial intelligence has barely scratched the surface when it comes to adoption, and there’s plenty of potential to tap into for investors ready to explore the long-term possibilities of the technology and its wider industry implications. 

Disclosure: On the date of publication, Dmytro Spilka did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer. Dmytro Spilka does not intend to make a trade in any of the securities mentioned above in the next 72 hours.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.