Goldman Sachs US Equity View: Profits Too High, But Not a Profits Bubble
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Abstract
Goldman Sachs' U.S. equity chart pack, "Profits Too High, But Not a Profits Bubble," examines whether the S&P 500's earnings surge poses bubble risk. Trailing four-quarter EPS grew 26% over the past year (Figure 1). Valuations based on recent earnings have diverged from multiples based on trend earnings (Figure 2). Fully expensing capital expenditures would reduce 2027 EPS (Figure 3). Among current S&P 500 constituents, semiconductor revenue growth has outpaced cost growth (Figure 4), and S&P 500 earnings growth is sensitive to the semiconductor margin trajectory, excluding other income (Figure 5).
Figure 6 compares Goldman Sachs' top-down S&P 500 earnings forecast with bottom-up market consensus. Semiconductor stock returns reflect expectations for slowing earnings growth (Figure 7), while continued earnings growth should support continued equity market upside (Figure 8). Across the exhibits, Goldman Sachs weighs how much of the profit expansion rests on semiconductors, what valuations on recent versus trend earnings already embed, and why elevated profits need not imply an earnings bubble.
Key exhibits
Exhibit 1
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Exhibit 5
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Exhibit 7
Exhibit 8
