Key insights
- Goldman Sachs notes that while AI capex has supported S&P 500 earnings, it may pressure mega-cap tech ROE going forward. Despite record ROE for the S&P 500, increased spending on AI infrastructure is expected to lead to higher depreciation and financing costs for tech giants. This could result in a notable decline in their ROE next year, potentially impacting overall market performance if these large companies face profitability headwinds.
Investing.com -- Goldman Sachs said record corporate profitability has helped support elevated U.S. equity valuations, although the artificial intelligence spending boom could weigh on returns for mega-cap technology companies in the coming years.
The bank noted that the S&P 500 has gained 9% year-to-date, driven primarily by stronger earnings expectations rather than valuation expansion. The index currently trades at 21 times forward earnings, a level that ranks well above its historical average.
According to the report, S&P 500 return on equity (ROE) reached a record 22% in the first quarter of 2026, surpassing the previous peak set in 2021.
Rising profit margins have been a key driver of the increase. The report also highlighted the growing influence of mega-cap technology companies, whose collective ROE stands at 44%.
The seven largest technology companies, including Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta Platforms, and Broadcom, have expanded their combined ROE by nine percentage points over the past three years.
Despite that strength, the report said the AI infrastructure buildout is likely to create new profitability pressures.
Analysts expect ROE across the largest technology companies to decline by an average of seven percentage points next year as spending on data centers, computing infrastructure, and AI-related assets continues to accelerate.
The report said hyperscale technology companies are becoming increasingly asset-intensive as they expand capacity to support AI workloads.
Depreciation and amortization expenses are projected to rise from 7% of revenue in 2022 to roughly 12% by 2027. Companies are also relying more heavily on debt and equity financing to fund investment plans.
Consensus estimates suggest major hyperscalers will spend about $770 billion on capital expenditures in 2026, equivalent to roughly 100% of their operating cash flow.
Still, the report maintained a positive long-term view on AI’s impact on corporate profitability. Productivity gains from AI adoption could eventually boost sales, earnings per employee, and profit margins across a wide range of industries.
The analysts added that semiconductor companies remain among the biggest beneficiaries of the AI spending cycle, supported by strong pricing power and elevated margins.
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