Barclays raised its year-end S&P 500 target to 7,950 Wednesday, betting stronger earnings and continued artificial intelligence spending can keep the rally going.
The bank lifted its target from 7,800 and raised its 2026 earnings-per-share forecast to $365 from $337, Reuters reported. The S&P 500 was trading around 7,625 Wednesday, leaving Barclays’ target about 4% above current levels. The index is tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY).
Even after the upgrade, Barclays is still one of the more cautious voices on Wall Street. HSBC raised its target to 8,100 Tuesday, while UBS, Goldman Sachs and Citigroup also see the index finishing at or above 8,000.
Prediction traders are more skeptical. Polymarket puts roughly 40% on an S&P 500 finish above 8,000, while its contracts put more combined weight on the index ending below 7,500 than above 8,000.
AI Earnings Are Doing the Heavy Lifting
Barclays’ base case assumes 30.8% earnings growth and a 21.8-times earnings multiple. At $365 in earnings per share, that multiple produces an index level near 7,950.
That means the call relies primarily on earnings growth rather than investors paying increasingly higher valuations.
Nvidia Corp. (NASDAQ:NVDA) sits at the center of that bet, while Microsoft Corp. (NASDAQ:MSFT), Amazon.com Inc. (NASDAQ:AMZN) and Alphabet Inc. (NASDAQ:GOOGL) are pouring hundreds of billions of dollars into AI infrastructure.
The spending is spreading beyond processors. Susquehanna analyst Mehdi Hosseini estimates memory chips now account for 50%-55% of semiconductor-industry revenue, benefiting companies including Micron Technology Inc. (NASDAQ:MU).
What Could Derail 7,950?
The largest cloud providers still need those investments to produce durable returns.
Investor Michael Burry has argued they may understate depreciation by extending the useful lives of AI hardware. Six-year-old Nvidia A100 chips still retain meaningful economic value, however, complicating that argument.
Barclays also flagged persistent inflation, geopolitical uncertainty, higher-rate risks and questions around the durability of AI spending.
Those risks were on display Wednesday as Brent crude climbed above $100 a barrel while Treasury yields reached their highest levels since November 2023, Reuters reported. The moves underscore Barclays’ concern that inflation and rates could limit how much investors are willing to pay for earnings.
For now, Wall Street is increasingly clustering around 8,000 or higher. Prediction traders remain more cautious, putting more weight on the S&P 500 falling below 7,500 than climbing above 8,000 by year end.
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