JPMorgan Raises S&P 500 Target; Can AI Sector Continue to Drive US Stocks?

TradingKey - JPMorgan Chase has raised its year-end target for the S&P 500, noting that the core driver is not a simple recovery in sentiment, but rather upward earnings revisions for AI-related technology companies.

On Tuesday (April 21), JPMorgan raised its year-end S&P 500 price target to 7,600 from last month's 7,200, while also increasing its 2026 S&P 500 earnings per share (EPS) forecast from $315 to $330 and its 2027 forecast from $355 to $385. Both estimates are notably higher than the Wall Street consensus.

At the same time, JPMorgan noted that the index could have further upside if geopolitical tensions in the Middle East continue to ease.

What is the key factor behind this upward adjustment?

From a market pricing perspective, JPMorgan's upward revision of its price target reflects a reaffirmation of AI-driven earnings.

Recent earnings upward revisions for the S&P 500 have been primarily concentrated in a handful of technology and energy companies, with AI-related firms contributing most significantly. The market is not merely paying for high valuations; rather, it is focusing on whether capital expenditures can translate into revenue and profit. As long as corporate earnings forecasts continue to be revised higher, the index maintains the potential for further upside.

More importantly, the context of this upward revision is challenging. On April 21, U.S. equities were caught in a tug-of-war between recurring Middle East tensions and optimistic corporate earnings. Ultimately, the three major indices all closed lower, with the Dow Jones Industrial Average falling 0.59%, the Nasdaq dropping 0.42%, and the S&P 500 declining 0.63%. This price action suggests that the market has not entirely lowered its guard against geopolitical risks. Consequently, JPMorgan’s decision to raise its price target at this juncture appears more like a definitive vote of confidence in the earnings outlook for AI-related tech companies, rather than an emotional pursuit of gains.

Data source: TradingView

What are the drivers behind the AI sector's recent role in fueling the sustained rally in US equities?

The most direct reason for the sustained rally in U.S. stocks is that the market has regained confidence that this round of AI investment is entering a phase where it can consistently generate returns.

As a startup, Anthropic has not yet gone public, but it holds a pivotal position in the AI field. Its release of the Mythos model on April 7 is considered by the market to be a major catalyst for this rally. The release of this model has made investors realize once again that AI capabilities continue to iterate, and the direction of iteration has shifted from simple conversational capabilities to stronger reasoning, coding, and security capabilities.

Analysis points out that the emergence of the Mythos model is key because it reinforces the market consensus that the AI industry is far from hitting a growth ceiling. The formation of this consensus has directly influenced the adjustment of the capital market's valuation logic for the AI sector, and the market's acceptance and tolerance of high valuations for related companies have significantly improved.

Meanwhile, large technology companies continue to increase their capital expenditures. Amazon ( AMZN) just announced an additional investment of up to $25 billion in Anthropic; Microsoft ( MSFT) recently announced it will invest approximately $10 billion in Japan between 2026 and 2029 to expand AI infrastructure and strengthen cybersecurity cooperation; Google ( GOOGL) expects capital expenditures to rise to between $175 billion and $185 billion in 2026, significantly higher than market expectations; META also recently launched a new data center project worth more than $1 billion.

The continuous increase in AI infrastructure investment by tech giants represented by Amazon, Microsoft, Google, and Meta confirms that the AI industry chain is still expanding at an accelerated pace. In this context, as long as the capital expenditures of leading companies maintain an upward trend, related companies such as computing power, cloud services, servers, and data centers will continue to receive valuation support, forming systemic value support at the industry chain level.

What should investors watch next?

Whether the AI sector can continue to rise hinges on whether its capital expenditure can be effectively converted into continuous upward revisions of earnings expectations. Currently, the main driver supporting the index's gains is not simple valuation expansion, but rather upward adjustments in corporate earnings outlooks. Once there is an issue with earnings expectations, the valuation elasticity of the AI sector will significantly diminish.

Meanwhile, the market must also remain vigilant against the risk of excessive structural concentration in the rally. The current trend is primarily dominated by a few tech giants; although this structure is characterized by high elasticity, it lacks breadth, meaning a pullback in leading companies could easily exert a significant drag on the overall index.

Furthermore, geopolitical situations and energy price trends remain macro variables that cannot be ignored. The risk premium in the Middle East has not substantively receded, and oil price fluctuations will continue to impact inflation expectations, thereby reshaping market assessments of the interest rate trajectory. Should inflation expectations remain stubbornly high, growth stocks and high-valuation AI assets will face downward pressure, ultimately dragging down the performance of the overall index.