Goldman Sachs Predicts 15% Upside For S&P 500, AI Boom Could Drive Market To 6,000

The S&P 500 could witness a further 15% surge by the end of 2024, driven by the ongoing exceptional performance of mega-cap tech stocks, according to a recent note from Goldman Sachs.

What Happened: The bank’s chief equity strategist, David Kostin, suggested that the S&P 500 could reach as high as 6,000, reported Business Insider. This optimistic scenario is attributed to the fact that tech stocks are not currently in a bubble, with investors focusing more on profitable growth than speculative companies yet to profit.

Kostin noted that the current long-term growth expectations for the S&P 500 are at 11%, slightly above the 9% average, but still below the 13% peak seen during the 2021 stock market frenzy and the 16% peak seen during the dot-com bubble in 2000.

Goldman Sachs also pointed out that the concentration in mega-cap tech stocks makes sense as these companies are growing much faster than the rest of the stock market. The annualized sales growth for the top seven tech stocks is expected to be 12% from 2023 through 2025, which is four times the 3% growth rate expected for the other 493 S&P 500 stocks over the same period.

“Although AI optimism appears high, long-term growth expectations and valuations for the largest TMT stocks are still far from ‘bubble’ territory,” Kostin said. 

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According to Goldman Sachs, another indicator of a bubble in the stock market is the valuation spread between the market-cap-weighted S&P 500 and the equal-weighted S&P 500, which does not show any current warning signs.

The valuation premium of the cap-weighted S&P 500 relative to the equal-weighted S&P 500 is currently at about 24%, much lower than the 100% seen during the 2000 dot-com bubble and the 30% in 2021.

Goldman Sachs also highlighted that the AI boom will not slow down anytime soon, citing takeaways from Nvidia‘s GPU Tech Conference last week.

Why It Matters: The S&P 500 has been on a remarkable run, with analysts debating whether a bubble is imminent. Some experts, like Apollo’s Chief Economist, have warned that the current AI bubble is larger than the 1990s tech bubble.

However, others like Ray Dalio believe the market is not in a bubble, citing various indicators.

Despite the ongoing debate, the S&P 500 has continued its upward trajectory, with analysts raising their price targets and predicting further growth in the coming months.

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