JPMorgan on Wednesday increased its year-end target for the S&P 500 to 7,800, describing recent changes to earnings expectations as an "unprecedented" upgrade cycle. The bank's mid-year outlook linked that upgrade momentum to a substantial pick-up in artificial intelligence capital spending and a more constructive geopolitical environment after reported progress between the U.S. and Iran.
In the note, analyst Dubravko Lakos-Bujas said consensus earnings growth has been revised up by roughly 20% on average across the next two years, moving "in lockstep with a near doubling of AI capex." The firm raised its S&P 500 earnings-per-share (EPS) estimate for 2026 to $350, which JPMorgan said represents 29% year-over-year growth. It also set a 2027 EPS forecast of $390, although that latter figure sits below current consensus as it factors in "the risk of diminishing AI-related pricing power."
JPMorgan characterized the magnitude of these positive estimate revisions as the sort of pattern normally observed only after a shock or in the post-recession phase of a cycle. The bank pointed to last earnings season's increased capital budgets as a primary catalyst and cited an April Anthropic headline as further evidence "confirming the viability of AI Services."
Despite the constructive update to the target and earnings outlook, JPMorgan cautioned that gains are unlikely to follow a straight line. Lakos-Bujas highlighted extreme crowding in momentum factors, with particularly acute concentration in low-quality and speculative growth segments, which he said carry "a high probability of a flash-crash."
The note also warned that rapidly increasing equity supply and the prospect of tighter monetary policy could act as constraints on valuation multiples.
On positioning, JPMorgan said it remains overweight technology, AI upstream plays, defense and banks, while noting that healthcare is showing increasing value. The bank described energy as "ripe for profit taking," despite roughly a 19% gain year-to-date.
Key takeaways
- JPMorgan raised its S&P 500 year-end target to 7,800, citing an "unprecedented" earnings upgrade cycle tied to rising AI capex and improved geopolitics.
- The bank lifted its 2026 S&P 500 EPS estimate to $350 (29% y/y growth) and set 2027 EPS at $390, but noted upside risks to AI pricing power could temper future consensus.
- JPMorgan is overweight technology, AI upstream exposure, defense and banks, sees growing value in healthcare, and views energy as potentially vulnerable to profit taking after a strong YTD rally.
Risks and uncertainties
- Extreme crowding in momentum and speculative growth segments - these areas face higher risk of abrupt sell-offs, which could affect technology and speculative growth names.
- Rapidly expanding equity supply and potential tightening in monetary policy - both factors could limit multiple expansion across the market.
- Possible erosion of AI-related pricing power - if AI-related pricing power diminishes, projected EPS gains for 2027 could face downward pressure.