Wall Street has spent the last year cheering a wave of upbeat earnings driven largely by the relentless march of artificial intelligence, but experts warn that this momentum may be hiding some structural weaknesses. According to Ben Snider, the chief US equity strategist at Goldman Sachs, the massive capital expenditure boom in AI has acted as a powerful engine for the S&P 500, accounting for nearly half of its earnings growth this year. However, Snider suggests that this specific tailwind is likely to fade starting next year, regardless of whether companies continue to pour money into AI infrastructure.
The concern is not necessarily that an AI bubble is about to burst in a dramatic crash, but rather that the current pace of growth is unsustainable. A significant portion of the market’s success has relied on semiconductor companies enjoying astronomical profit margins due to skyrocketing demand and limited supply. As supply chains stabilize and potential price corrections hit chips, those margins could shrink, leaving overall index earnings vulnerable. If the cost of hardware drops or investment slows slightly, the very sector that propelled the market forward could become a source of disappointment for investors.
Adding to this fragility is a less visible contributor to Big Tech’s bottom line: gains from private investments. These paper profits have padded earnings reports without generating actual cash flow, creating an illusion of strength that may vanish soon. Snider warns that removing this other income could create a substantial drag on S&P 500 earnings growth by 2027 compared to previous years. While the long term promise of AI remains intact, the immediate financial numbers suggest that the easy wins provided by initial infrastructure spending are coming to an end.