Goldman Sachs: Tech giants' valuations have fallen to a low level and are optimistic that the S&P 500 will rise 14% next year

The Zhitong Finance App learned that Goldman Sachs Group strategists are bullish on the US stock market in 2027 and predict that the S&P 500 index will rise 14% in the next year. The reason is that the valuation of hyperscale technology stocks is at a historically low level after being sold off.

The team, led by Peter Oppenheimer, overmatches the US and Japanese markets next year. In their report to clients, they said they expect the S&P 500 to hit 8,700 points in the next 12 months, although they expect the benchmark index's profit growth to slow sharply. The S&P 500 has risen 11% since 2026.

At a time when Goldman Sachs is bullish, the Nasdaq 100 index has fallen 9% from its high in early October, hampered by concerns about artificial intelligence construction and the Nvidia (NVDA.US) scandal — which led to CEO Wong In-hoon's resignation this week. The strategist said that this round of decline has left the valuation of so-called hyperscale data center operators “far below” their historical levels.

The Nasdaq 100 valuation multiplier falls to a six-year low

They wrote, “We think tech stocks — especially hyperscale data centers — are relatively defensive. Admittedly, some of the largest companies have experienced negative cash flows, but overall balance sheet metrics such as net debt/equity remain healthy.”

Given that global earnings growth is expected to slow in 2027, the team recommended investing in US and Japanese stocks, as well as industries that generally perform well in an environment of lower bond yields, reduced inflation, and lower oil prices. They predict that the earnings per share growth rate will slow rapidly. The earnings per share growth rate of the S&P 500 index will drop from 36% in 2026 to 11% next year, while the earnings per share growth rate of the European Stoxx 600 index will drop from 18% to 7%.

Goldman Sachs said this means that the market may give a premium to companies that continue to expand rapidly.

“We anticipate that as growth becomes more scarce, investors will look for companies that can sustain growth,” Goldman Sachs strategists wrote. “Long-term growth companies are emerging with many attractive investment opportunities, and as growth slows, such companies should become more valuable.”

The bank maintains a low price on European stocks. The Oppenheimer team believes that European valuations have declined less than in other regions, and that government debt issues and “intensive political agendas” mean that the risk is higher. Driven by strong earnings season performance and investors' withdrawal from artificial intelligence trading, the European Stoxx 600 Index hit a new high this week.