Goldman Sachs: Strong Earnings and AI Capex Keep Supporting Equities - FJElite

Positive earnings revisions continue to push the S&P 500 to new record highs. Q1 earnings have been strong, with S&P 500 EPS growth tracking around 17% year-on-year excluding some one-off items. The index is up 8% year to date, alongside 13% growth in 12-month forward EPS estimates, even as the P/E multiple has declined 4%.

The reporting season has also reinforced the shift in corporate spending priorities away from buybacks and toward capex. So far in Q1 2026, S&P 500 companies have reported capex growth of 38% year-on-year versus just 1% for buybacks, with that trend expected to continue through 2026. AI hyperscalers are the biggest driver, but the broader pattern is visible across most sectors. Investors have recently been rewarding companies investing for growth, especially in the AI complex, while also stepping back from weaker balance sheet names as the war and Fed uncertainty have ended the move away from quality that defined much of 2025.

The broader view is that investors are still likely to reward companies investing in secular growth opportunities, while continuing to assign premium valuations to firms returning cash and those with stronger balance sheets. Weak buyback growth should help preserve a scarcity premium for shareholder returns, while higher debt costs should continue to support a valuation premium for balance sheet strength.