Goldman Sachs Targets S&P 500 at 8,700, Forecasting 14% Rally on Compressed Valuations

Wall Street took a beating last week, but the rout has carved out an aggressive entry point for buyers.

Goldman Sachs pushed its 12-month S&P 500 target to 8,700 points, projecting an upside of more than 14% from its previous close of 7,592.40 points. The thesis rests on valuation relief. Multiples on the benchmark index compressed from peaks above 23 times forward earnings down to 18.5 times. That reset offers institutional desks enough buffer to absorb a sharp deceleration in balance-sheet expansion.

Hyperscaler Capex Retreat and Multiples Reset

Corporate profits will slow. Goldman Sachs expects earnings growth across international equities to at least halve by 2027. In the United States, profit expansion will drop from 36% to 11% as tech hyperscalers scale back capital expenditure. The initial shock hit markets immediately after the Democratic victory in the US midterm elections, which prompted investors to question the pace of federal permitting and data center construction.

The math changed fast. Big tech spent two years pouring record cash into data center footprints, driving high multiples across the AI supply chain. Now, spending growth is tapering. Yet Goldman Sachs argues that multiple compression, softer bond yields, steady underlying economic expansion, and cooling inflation will provide enough ballast to keep the index in positive territory.

Market Context: A compressed price-to-earnings multiple means equities can advance even during cyclical profit plateaus. When an index sheds five turns of forward earnings, lower bond yields and stable free cash flow often step in to support equity returns without requiring record bottom-line beats.

Turmoil at Nvidia and Regional Desk Weightings

The AI trade absorbed a separate shock after long-time Nvidia Chief Executive Jensen Huang stepped down following allegations regarding personal misconduct. The leadership exit hammered sentiment across semiconductor order books.

Nvidia shares derated sharply to trade at roughly 11.7 times 12-month forward earnings estimates. That multiple represents the chipmaker's lowest valuation since February 2012, according to consensus trading data.

Despite sectoral turmoil, Goldman Sachs realigned its global portfolio weightings to favor domestic and developed Asian paper over Continental equities:

Goldman Sachs retained an 'overweight' stance on both US and Japanese equities, betting that domestic liquidity and corporate reforms in Tokyo offer superior risk-adjusted exposure. Asia ex-Japan and broader emerging markets received a 'neutral' rating. Europe was relegated to 'underweight' as defensive capital rotations accelerate.

Trading desks now face the next phase of the corporate calendar, with attention turning to forward capital guidance from cloud providers and incoming central bank rate decisions to test Goldman's 8,700 index trajectory.