Barclays Raises S&P 500 Target to 7,950 on Tech Earnings

Barclays has raised its year-end S&P 500 target to 7,950 from 7,800, driven by a "standout earnings season led by tech" and anticipated continued spending on artificial intelligence [3, 5]. This new target is approximately 3.6% above the index's recent close [1, 5].

Earnings Strength and AI Momentum

The upgrade follows a stronger-than-expected second-quarter earnings season, where 86% of the 492 S&P 500 companies that reported results beat analysts' estimates, significantly above the long-term average of 67.5% [1, 5]. Technology companies were key drivers, with Big Tech earnings growing 35% year-over-year in the second quarter, an acceleration from 30% in the prior quarter, while the broader tech sector saw an 88% jump in earnings [3, 4]. Barclays strategist Venu Krishna noted that this "beat and raise" execution by tech companies reinforces the durability of AI-driven earnings [3, 4].

Barclays anticipates this earnings momentum will persist, supported by AI investments and a healthy U.S. economy [1]. The firm raised its 2026 earnings-per-share (EPS) forecast for the S&P 500 to $365 from $337, and its 2027 forecast to $414 from $389 [3, 4]. Hyperscaler capital expenditure (capex) is projected to exceed $1.1 trillion in 2027, a 67% increase from the previous year, with Google, Amazon, and Meta expected to be major contributors [3, 4]. While growth is expected to moderate in 2028, spending is still projected to rise by about 30% [3, 4].

Valuation Concerns and Sector Adjustments

Despite the bullish outlook on earnings, Barclays maintains caution regarding valuations, flagging concerns about the sustainability of AI spending, persistent inflation, geopolitical uncertainties, and a more hawkish interest-rate outlook [1, 5]. The S&P 500 has already gained 12.1% this year, suggesting investors have largely overlooked these broader concerns [1, 5].

In a sector-specific adjustment, Barclays downgraded utilities to "neutral" from "positive" [1, 5]. This move was attributed to regulatory uncertainty, including challenges related to wildfire liability reform and increasing opposition to data center permitting in some U.S. states [1, 5].

Barclays is not alone in its positive outlook; HSBC also raised its year-end S&P 500 target, citing strong corporate earnings and continued AI infrastructure spending [1, 5]. UBS Global Research, Goldman Sachs, and Citigroup are even more optimistic, with all three expecting the index to finish the year at or above 8,000 [1, 5].

What to watch

• Hyperscaler Capex Growth: Monitor hyperscaler capital expenditure figures for 2028, which are projected to slow to 30% growth after a 67% increase in 2027 [3, 4].
• AI Spending Durability: Observe company guidance and reports for signs of sustained AI spending, as Barclays remains cautious about its long-term pace [1, 5].
• Regulatory Developments in Utilities: Track regulatory changes and permitting challenges in the utilities sector, particularly concerning data centers and wildfire liability, which could impact future earnings [1, 5].

The market's ability to sustain its current valuation levels will depend on whether the robust earnings momentum, particularly from the technology sector and AI investments, can continue to outweigh broader macroeconomic headwinds and valuation concerns.