Goldman Sachs reports that the S&P 500 has climbed to new record highs, buoyed by positive revisions to company earnings and robust first-quarter results. As of Monday, the index has risen 8% year-to-date.
According to Goldman, first-quarter earnings for S&P 500 companies displayed year-over-year earnings-per-share growth of 17%, after excluding certain one-time items. That earnings strength has been accompanied by a 13% rise in 12-month forward EPS estimates, while the market's price-to-earnings multiple has contracted by 4% during the same period.
Corporate spending behavior shifted markedly in the first quarter. S&P 500 firms reported 38% year-over-year increases in capital expenditures, contrasted with only 1% growth in buybacks. Goldman Sachs projects this allocation pattern will continue through 2026, forecasting capex to expand 33% to reach $2 trillion while buybacks rise by just 3% to $1 trillion.
AI hyperscalers are at the forefront of the capex surge, with Goldman projecting their spending will reach $755 billion in 2026. The move toward higher investment outlays is not isolated to a single industry; Goldman indicates the trend extends across most sectors.
Investor preferences have shifted in recent months toward companies that are directing cash into growth investments rather than returning it to shareholders via buybacks. This tilt toward growth-focused businesses has been particularly visible among AI-related companies. At the same time, Goldman notes that the consequences of the war on economic growth and the outlook for Federal Reserve policy have halted the equity market rotation away from quality stocks that was a feature of much of 2025.
Looking ahead, Goldman expects investors to continue to reward companies channeling funds into secular growth opportunities. However, the firm cautions that geopolitical developments and AI-related outcomes will shape how the returns from current investment spending are evaluated.
Goldman also expects companies that return cash to shareholders and those with robust balance sheets to retain premium valuations. Slower buyback growth should support a scarcity premium for firms returning cash to shareholders, a group Goldman notes has historically outperformed. Rising borrowing costs are expected to sustain a valuation premium for companies with strong balance sheets.
Implications for markets and sectors
- Technology and AI-related companies are central to the capex increase, reflecting large-scale investment by hyperscalers.
- Corporate finance dynamics have shifted, with capital expenditure and balance-sheet strength becoming more important drivers of valuation.
- Broad-market impacts are evident as earnings revisions and capex trends influence S&P 500 performance.