AI Surge Could Propel S&P 500 to 7,750 by 2026, Says Wall Street Strategist

AI Drives Bullish Outlook for S&P 500 Through 2026

Wall Street strategist Julian Emanuel from Evercore ISI has raised his year-end 2025 price target for the S&P 500 to 6,250 from 5,600. More notably, he forecasts the index to climb about 20% to 7,750 by the end of 2026, attributing this surge to a significant technological shift fueled by artificial intelligence (AI).

While Emanuel anticipates a modest near-term pullback from current levels, his longer-term view is optimistic. He expects AI adoption to boost corporate earnings and valuation multiples across a broad range of industries, driving market growth beyond typical cycles.

Potential for an AI-Driven Asset Bubble

Emanuel’s bull case extends further. He envisions the S&P 500 reaching 9,000 if an “AI-driven asset bubble” forms, a scenario possibly amplified by an overly accommodative Federal Reserve despite ongoing inflation concerns. Corrections of 10% or more could occur, but he sees these as buying opportunities within a structurally bullish market.

He compares the current AI surge to the internet boom of the 1990s but notes that AI is being adopted faster and more broadly across sectors, creating wider investment opportunities.

Rising Earnings Forecasts Bolster Optimism

Alongside higher price targets, Emanuel raised earnings per share (EPS) forecasts to $264 for 2025 (from $255) and $287 for 2026 (from $272). These adjustments reflect expectations of tariff resilience and productivity improvements driven by AI.

This view aligns with broader Wall Street sentiment emphasizing earnings as the primary driver for stock performance. According to FactSet data, with 98% of S&P 500 companies reporting, second-quarter earnings are set to increase 11.9% year-over-year, marking the third straight quarter of double-digit growth. Notably, 81% of companies surpassed EPS estimates, with the "Magnificent Seven" technology giants posting 26.6% earnings growth compared to 8.1% for the rest of the index.

Citi Maintains Steady Outlook Amid Volatility Warnings

Citi holds its year-end S&P 500 target at 6,600 and full-year earnings outlook at $272, citing policy support and strong consumer spending as tailwinds. The firm’s U.S. equity strategy team led by Scott Chronert points to ongoing earnings momentum, manageable tariff impacts, and new tax incentives as factors underpinning their confidence.

However, Citi cautions investors to prepare for volatility as the market approaches year-end. Third-quarter earnings could be “noisy” following strong second-quarter results. Adding uncertainty, a recent federal appeals court ruling struck down most of President Trump’s global import tariffs, stating the executive orders exceeded legal authority. This decision, pending Supreme Court appeal, leaves tariffs in place for now but introduces further complexity.

Chronert notes that while fewer tariffs might ease margin pressures, losing tariff revenue could reignite fiscal concerns. This tension could influence market dynamics even as earnings improve.

Monetary Policy and Treasury Yields in Focus

Long-term Treasury yields have edged higher, with the 30-year yield nearing 5%, a level often seen as a potential headwind for stocks. Market attention has shifted back to monetary policy, particularly expectations that the Federal Reserve might cut interest rates soon.

Fed Chair Jerome Powell’s recent comments opened the door to a rate reduction, fueling stock gains. The upcoming August jobs report will be a key data point, especially following weaker inflation and labor market signals.

Currently, markets price in about a 90% chance of a 25 basis point cut in September. Depending on incoming data, the Fed could opt for a deeper easing. The September 17 decision will set the tone for investor expectations on monetary support moving forward.

Key Takeaways for Finance Professionals

• AI adoption is expected to significantly lift earnings and valuations, supporting higher S&P 500 targets through 2026.
• Market corrections remain possible but may present buying opportunities within a broader structural uptrend.
• Tariff-related developments and monetary policy decisions will continue to influence market volatility and investor sentiment.
• Monitoring earnings growth, especially from leading tech companies, remains crucial for positioning portfolios.

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