AI Boom Lifts US Stocks, Strategist Sees S&P Breaking 10,000 in Three Years, How Much Longer Can This Rally Last?

TradingKey - U.S. stocks closed at record highs again on Monday; despite growing concerns that a prolonged conflict in Iran through the summer could trigger severe economic consequences, the rally remained undeterred. Since the start of 2026, AI-related stocks have been the core pillar of the S&P 500's gains, accounting for over 80% of the upward momentum.

Veteran Wall Street investment strategist Ed Yardeni has become one of the most optimistic market forecasters, not only raising his year-end S&P 500 target from 7,700 to 8,250, but also providing a long-term outlook of hitting the 10,000 mark in three years.

Better-than-expected first-quarter corporate earnings were the key driver behind Yardeni's upward revisions; he simultaneously raised earnings-per-share estimates, boosting this year's EPS forecast from $310 to $330 and the 2027 projection from $350 to $375.

Yardeni stated that the pace at which consensus earnings expectations for this year and next have risen in recent months is unprecedented, directly fueling an earnings-led market melt-up. He believes the strong resilience of the U.S. economy and corporate profits will support the continuation of this bull market, with the 'Roaring Twenties' expected to end on a high note and the 10,000-point long-term target potentially being reached ahead of schedule.

Multiple institutions reach consensus on bullish outlook

In addition to Yardeni, several Wall Street firms have also raised their year-end price targets for the S&P 500.

HSBC Holdings strategists Nicole Inui and Alastair Pinder raised their target from 7,500 to 7,650, while Sam Stovall of CFRA Research hiked his target from 7,400 to 7,575, both citing better-than-expected corporate earnings and a recovery in the tech sector.

In a note to clients on Monday, HSBC strategists mentioned they share Yardeni's view that the S&P 500 could potentially reach 8,000, driven by improving sentiment in the tech sector, the continued penetration of AI technology, and easing concerns over geopolitics, trade frictions, and interest rate volatility.

Wall Street investment bank Jefferies ( JEF) strategists believe this rally has a solid foundation. Their quantitative strategy team's analysis found that returns from AI portfolios are driven by earnings growth rather than P/E expansion, making the upward trend sustainable; excluding the contribution of the AI sector, the S&P 500's gain this year would be just 2%.

Data shows that 2026 earnings estimates for the AI sector have risen by more than 30% since mid-2025. Analysts generally expect the sector's compound annual growth rate (CAGR) for earnings per share to reach 38.5% between 2026 and 2027, compared to just 11.9% for non-AI sectors.

VIX climbs in tandem

However, the CBOE Volatility Index (VIX) also climbed 6.9% on Monday to close at 18.37, marking its largest single-day gain since the index surged 11.5% on February 15.

Historical data shows that since the 1990s, there have been 250 instances where the S&P 500 closed at an all-time high while the VIX also rose; however, the occurrence of the index hitting a record high alongside a VIX increase of 5% or more has happened only 34 times.

According to Dow Jones Market Data, when this occurs, the median return for the S&P 500 over the following month is -0.8%, with the three-month median return at 1.6% and the six-month median return rising to 3.2%.

Jordan Rizzuto, Chief Investment Officer at GammaRoad Capital Partners, believes that single-day volatility cannot be used to directly infer market direction; what warrants more attention is whether the VIX exhibits a long-term upward trend while the stock market continues to hit new highs. This phenomenon—where market peaks coincide with a sustained rise in implied volatility—was seen before the dot-com bubble burst and the global financial crisis, serving as a classic characteristic of a late-cycle rally; however, the market currently shows no signs of a sustained increase in implied volatility.

Meanwhile, following a continuous climb, U.S. stock market technicals have released clear signals of overheating. Stovall, an analyst at CFRA Research, noted that the S&P 500’s 14-day Relative Strength Index (RSI) has risen to 75, surpassing the level of 70 typically considered the overbought threshold, suggesting the index may need to enter a period of consolidation.