Tech companies may only get half the profit they need to justify their AI investment, Goldman warns | Fortune

"Much of the bullishness is coming as analysts realize that the massive amounts of capital expenditure (capex) on building out AI data centers isn't likely to stop anytime soon.The result of all that new spending will be that "we expect another year of solid gains for U.S. equities in 2026. We forecast an S&P 500 total return of 12% to a year-end level of 7,600," Goldman Sachs analyst Ben Snider and his colleagues told clients in a note sent this morning.However, the wrinkle for 2026 will be that AI capex growth will start to slow down, he said. In turn, the amount of profit needed to justify all that capex won't show up, Snider et al argue, and that will cause traders to pick and choose winners and losers among the big tech firms of the S&P 500."

""The 10 largest stocks in the S&P 500 account for 41% of market cap and drove 53% of the S&P 500 2025 return. We expect AI spending will exceed consensus estimates this year but begin to decelerate in growth terms while corporate adoption increases, causing rotations among the largest U.S. tech stocks that create two-way risk for the aggregate index," he told clients."

"Capex spending by the big "hyperscalers" ( Meta, Amazon, Alphabet, etc.) was roughly $400 billion in 2025, up 70% annually, Goldman calculates. The big tech companies have also started to fund much of that growth with debt. " As spending and debt grow, so do the necessary eventual profits to justify ongoing investments," Snider says. So far, tech companies have been happy to spend that money because the profits they generated were two or three times as much as they invested, Goldman estimates. The problem is that tha"

The S&P 500 reached a record high at 6,944.82, up 0.62%, while futures edged lower as traders locked in gains and the STOXX Europe 600 also hit a new high then traded flat. Large-scale capital expenditure on AI data centers continues to drive market bullishness and should sustain U.S. equity gains into 2026, with a projected S&P 500 total return of about 12% to a year-end level near 7,600. AI capex growth is expected to decelerate, prompting investor rotations among the largest tech firms and creating two-way risk for the overall index. Hyperscaler capex reached roughly $400 billion in 2025, much of it funded with debt, increasing the profits required to justify ongoing investment despite past high returns on spending.

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