Wall Street lifts S&P 500 targets as AI spending fuels melt-up hopes

Wall Street keeps lifting S&P 500 targets as AI capex powers the next leg

AI is carrying the bull case. Wells Fargo, Barclays, Deutsche Bank, and Yardeni Research all raised S&P 500 targets, citing resilient earnings and an ongoing AI investment cycle as the primary driver. The index traded just above 6,580 on Thursday.

Deutsche Bank now sees the S&P 500 at 7,000 in 2025 (from 6,550), expecting the rally to broaden beyond mega-caps as the capex surge digests. Wells Fargo set 6,650 for year-end and 7,200 by end-2026. Barclays bumped 2025 to 6,450, while Yardeni lifted year-end to 6,800 and assigns a 25% chance of a "melt-up" to 7,000 if the Fed signals more easing.

Macro: sticky inflation, softer labor, easing still likely

Inflation ticked up: CPI rose 2.9% in August versus 2.7% in July. Weekly jobless claims jumped to 263,000, the highest in nearly four years. Despite this mix, markets still expect a Fed cut of 25 bps, with rising odds of 50 bps.

That tension-sticky prices, softening jobs, and stretched valuations-keeps focus on the rally's narrow leadership. Wells Fargo acknowledges froth but argues the cycle endures while AI capex persists. As Ohsung Kwon put it, "Music stops when AI capex stops. Enjoy the party."

Why strategists are leaning glass-half-full

• AI spending remains the earnings engine: data centers, accelerated computing, networking, memory, and power/cooling infrastructure.
• Software adoption and productivity gains continue to lift margin narratives even with policy noise and tariff shocks.
• Leadership may broaden: Deutsche Bank expects more cyclicals to participate as mega-caps digest prior gains.

Market context

New highs this week cap a powerful run off April lows. Year to date, the S&P 500 is up ~11% and the Nasdaq over 13%. From April's trough, they're up roughly 30% and 40%, respectively. Even the Russell 2000 is closing in on double-digit gains.

Single-name signals support the theme: Oracle jumped more than 30% after guiding its AI-driven cloud revenue to $144 billion by fiscal 2030.

Targets at a glance

• Deutsche Bank: 7,000 (2025)
• Wells Fargo: 6,650 (year-end), 7,200 (2026)
• Barclays: 6,450 (2025); "positive view on the entire tech space" and sees data center supply/demand favoring shorter-lived assets suppliers
• Yardeni Research: 6,800 (year-end); 25% melt-up to 7,000; 20% correction probability
• Evercore ISI: 6,250 (2025); 7,750 (2026)

Positioning ideas for finance leaders

• Favor AI capex beneficiaries: accelerated compute, high-bandwidth memory, networking, power equipment, cooling, and colocation. Shorter replacement cycles support revenue visibility.
• Barbell growth and cyclicals: maintain core AI exposure while adding select cyclicals that benefit if breadth improves.
• Quality bias in software: fears of AI "disruption" may be overstated near term; look for vendors monetizing AI features with clear unit economics.
• Duration and rates: if the Fed leans dovish, extend a bit of duration sensitivity; if inflation re-accelerates, keep dry powder and hedge beta.

What to watch

• Fed guidance next week: path of cuts (25 vs. 50 bps) and balance-sheet tone.
• AI capex run-rate: hyperscaler budgets, lead times, and supply constraints across GPUs, memory, and networking.
• Breadth and factor shifts: signs of rotation beyond mega-cap tech into cyclicals and industrial tech.
• Macro prints: CPI and jobless claims for confirmation of disinflation or renewed pressure.
• Valuation discipline: earnings revisions vs. multiples in AI-linked segments that have re-rated fastest.

Risk map

• AI spending pause or supply normalization pulls forward demand, pressuring multiples.
• Stagflation scare: sticky inflation with weakening labor would compress risk appetite.
• Policy and tariffs: margin drag for globally exposed sectors.
• Concentration risk: narrow leadership magnifies drawdown potential if mega-caps wobble.

Bottom line

The bull case stands on one pillar: AI capex. As long as that pillar holds, targets keep moving higher and breadth can improve. If it cracks, expectations reset fast.

Track the data and adjust exposures accordingly. For CPI updates, see the Bureau of Labor Statistics release here. If you're evaluating practical AI tools for finance workflows, this curated list can help: AI tools for finance.