JPMorgan has become more bullish on the S&P 500 following a powerful second-quarter earnings season, raising its 2026 index target from 7,800 to 8,000. Stronger corporate profits and mounting evidence that hyperscalers are generating commercial returns from their enormous artificial intelligence investments underpin the upgrade, although the bank remains cautious about stretching market valuations further.
JPMorgan upgrades earnings forecasts
Second-quarter earnings have exceeded JPMorgan’s expectations across a wide range of industries.
With 87% of S&P 500 companies having reported, strategists led by Dubravko Lakos-Bujas said performance “remains strong and broad-based across multiple sectors.”
JPMorgan now expects S&P 500 EPS to reach $365 in 2026, compared with the consensus estimate of $358.
That would represent annual growth of approximately 35%.
The bank also raised its 2027 forecast to $420 per share, implying another 15% increase.
Underlying EPS growth remains powerful
Private-company investment gains have provided a notable boost to reported earnings.
Based on valuations recorded during the first six months of 2026, JPMorgan calculates that these gains have added approximately $18 to index-level EPS.
Stripping them out reduces normalised 2026 EPS to around $347.
Even then, annual earnings growth would remain an impressive 28%, suggesting the market’s fundamental strength extends well beyond non-operating valuation gains.
Higher target does not rely on multiple expansion
JPMorgan continues to apply a forward valuation multiple of approximately 20 times earnings.
That is despite describing the environment as “one of the strongest fundamental backdrops since GFC.”
The bank remains reluctant to assume further multiple expansion because interest rates could stay higher for longer, geopolitical uncertainty remains elevated and financial markets must absorb significant amounts of equity and debt issuance.
The path towards 8,000 therefore depends primarily on earnings growth rather than investors paying increasingly expensive multiples.
Hyperscalers begin proving AI returns
AI investment remains one of the most important forces shaping the market.
The focus, however, is shifting.
Rather than simply assessing how much hyperscalers are spending, investors increasingly want evidence that those investments can generate revenue, cash flow and acceptable returns on invested capital.
JPMorgan sees signs that this process is underway.
Google, Amazon and Microsoft stood out during earnings season as “stronger cloud growth, backlog expansion, and improved operating cash flow visibility cleared a high investor expectation bar.”
AI spending could exceed $1.2 trillion
Capital expenditure nevertheless continues to rise at an extraordinary rate.
Consensus estimates suggest AI capex will reach approximately $900 billion by the end of 2026, representing 85% annual growth.
By the end of 2027, spending is projected to exceed $1.2 trillion.
The investment wave is creating enormous demand throughout the AI ecosystem, from semiconductors and servers to data centres, networking infrastructure, power generation and cooling equipment.
Cloud growth provides evidence of monetisation
Cloud results strengthened the argument that hyperscalers are beginning to translate AI investment into revenue.
AWS expanded 37% year over year, Azure grew 43%, and Google Cloud delivered record growth of 82%.
Backlog growth was equally striking.
Google Cloud added $52 billion sequentially, taking its backlog to $514 billion.
AWS backlog increased 36% from the previous quarter to $496 billion, almost 2.5 times the level recorded a year earlier.
Those figures provide considerable visibility into future demand.
AI capex creates a $430 billion cash flow gap
The biggest concern is increasingly cash generation.
Combined trailing-12-month hyperscaler net income has risen to $599 billion, while free cash flow stands at just $169 billion.
That leaves a gap of approximately $430 billion.
At the end of 2023, the two measures were roughly equal, illustrating how dramatically the AI capital-spending cycle has changed cash-flow dynamics.
JPMorgan expects this pressure to persist.
Apart from Microsoft, its analysts forecast that most hyperscalers will generate negative free cash flow through the 2026-2027 period.
Earnings growth drives JPMorgan’s 8,000 target
The combination of strong corporate earnings and improving AI monetisation has given JPMorgan greater confidence in further S&P 500 gains.
The bank’s 2026 EPS estimate now stands at $365, rising to $420 in 2027.
Rather than relying on further valuation expansion, JPMorgan has kept its forward multiple near 20 times, meaning stronger profits are doing most of the work behind the upgraded index forecast.
While enormous AI investment is placing considerable pressure on free cash flow, accelerating cloud revenue and record backlogs provide increasing evidence that this spending is generating demand.
JPMorgan consequently sees the S&P 500 reaching 8,000 in 2026.
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