Goldman Sachs analyst cautions AI profits could fall 50% short of justifying investments

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The S&P 500 reached a fresh all-time high yesterday, climbing 0.62% to 6,944.82. Futures edged lower this morning, a typical move as traders look to sell and secure some profits. The STOXX Europe 600 similarly set a new record yesterday and held steady in early trading today.

A significant part of this positive sentiment stems from analysts recognizing that the enormous capital expenditure (capex) for constructing AI data centers is unlikely to cease in the near term.

This wave of new investment will lead to “another year of solid gains for U.S. equities in 2026. We forecast an S&P 500 total return of 12% to a year-end level of 7,600,” Goldman Sachs analyst Ben Snider and his team informed clients in a note this morning.

Nevertheless, a complication for 2026 will be the anticipated slowdown in AI capex growth, he stated. Consequently, the profit required to validate all that spending will not materialize, Snider et al contend, prompting traders to differentiate between winners and losers among the S&P 500’s major tech companies.

“The 10 largest stocks in the S&P 500 account for 41% of market cap and drove 53% of the S&P 500 2025 return. We expect AI spending will exceed consensus estimates this year but begin to decelerate in growth terms while corporate adoption increases, causing rotations among the largest U.S. tech stocks that create two-way risk for the aggregate index,” he told clients.

Capital expenditure by the major “hyperscalers” (, , , etc.) totaled approximately $400 billion in 2025, a 70% annual increase, according to Goldman’s calculations. These large tech firms have also begun financing much of that expansion with debt.

“As spending and debt grow, so do the necessary eventual profits to justify ongoing investments,” Snider says.

To date, technology companies have been willing to make these investments because the profits they produced were two to three times their investment, Goldman estimates. The issue, Snider notes, is that this may not be sustainable. “Given consensus estimates for an annual average of $500 billion in capex from 2025-2027, maintaining the returns on capital to which their investors have become accustomed would require these companies to realize an annual profit run-rate of over $1 trillion, more than double the 2026 consensus estimate of $450 billion in income,” he wrote.

He suggests that while some firms will manage to produce the necessary profits, others will fall short. “The magnitudes of current spending and market caps alongside increasing competition within the group suggest a diminishing probability that all of today’s market leaders generate enough long-term profits to sufficiently reward today’s investors.”

Analysts at and are also concentrating on the narrative linking AI capex to profits.

Piper chief global economist Nancy R. Lazar and her colleagues expect tech companies have not yet hit the limit of their capex budgets, particularly as the One Big Beautiful Bill Act (OBBA) provides new tax incentives for capital spending. “Tech capex has been a huge story for a while now, but against history, it’s still not ‘too high’ vs. GDP. And there’s plenty of upside ahead, given OBBA’s full capex expensing, Fed easing, and banks easing lending standards,” they told clients.

Vanguard’s Qian Wang, global head of capital market research, also cautioned that if profits fail to keep pace with capex, investors should prepare for a pullback. “We are bullish on AI’s potential to transform the economy. But transformative technology needs profitable business models to win. And, in the financial markets, returns hinge on expectations. Tech companies’ earnings have been strong so far, but their valuations may have gotten ahead of themselves. When expectations get too far out of whack, it is not surprising to see markets pull back,” she said in an email sent to .

Here’s a snapshot of the markets ahead of the opening bell in New York this morning:

  • S&P 500 futures were unchanged this morning. The last session closed up 0.62% at 6,944.82, a record high.
  • STOXX Europe 600 was flat in early trading. 
  • The U.K.’s FTSE 100 was down 0.65% in early trading. 
  • Japan’s Nikkei 225 was down 1.06%.
  • China’s CSI 300 was down 0.29%. 
  • The South Korea KOSPI was up 0.57%. 
  • India’s NIFTY 50 was down 0.14% 
  • Bitcoin sank to $91.8K.