JPMorgan hikes S&P 500 target as AI spending starts paying off

JPMorgan strategists raised their year-end target for the S&P 500 to 8,000 points on Monday, citing strong corporate earnings and clear signs that heavy spending on artificial intelligence is starting to pay off.The move marks the second increase in two months for the team led by Dubravko Lakos-Bujas.In June, the strategists lifted the forecast to 7,800 from 7,600.

The new target implies a roughly 3% upside from Friday’s close of 7,757.64.The S&P 500 tracks 500 of the largest U.S.publicly traded companies and serves as a key benchmark for the broader stock market.

It recently reclaimed record highs after companies reported robust results.Strategists pointed to second-quarter earnings as the main driver.Corporate profits jumped 32% in one of the strongest quarterly advances on record.

Nearly four in five companies that reported results beat earnings expectations, and about 73% topped revenue forecasts, according to the bank’s note.JPMorgan also raised its full-year earnings-per-share estimate for the index to $365, a 35% increase from the prior year.The bank projects $420 for 2027.The strategists highlighted progress among the so-called AI hyperscalers, which are the large technology firms that build and operate vast cloud computing networks.

Alphabet Inc., Amazon.com Inc.and Microsoft Corp.

all showed stronger cloud growth and larger order backlogs.“As elevated backlogs convert into recognized revenue, cloud growth should remain well supported, helping validate rising AI capex,” the JPMorgan analysts wrote.“Across hyperscalers, demand indicators remain high and rising.”JPMorgan expects artificial intelligence-related spending to make up well over half of the $1.5 trillion in total capital expenditures planned by S&P 500 companies this year.

That share is likely to grow further.The bank said the latest results reduce concerns about returns on the massive investments these companies have made.Monetization of AI spending appears to be acc...