Tech Stock Showdown: Why Goldman Sachs and Hedge Funds Are Betting Opposite Ways

TLDR

• Goldman Sachs increased its S&P 500 year-end projection to 8,000 from 7,600
• The upcoming Q2 earnings season beginning in mid-July represents a crucial moment for market direction
• Artificial intelligence infrastructure investments are projected to contribute approximately 50% of S&P 500 earnings expansion in 2026
• During the week closing June 25, hedge funds dumped technology equities at the most aggressive rate since 2016
• The Magnificent Seven tech giants shed more than $2.3 trillion in combined valuation throughout June

On May 26, Goldman Sachs elevated its S&P 500 year-end forecast to 8,000, marking an increase from its previous 7,600 projection. The investment bank’s chief U.S. equity strategist Ben Snider detailed this position in a research note dated June 28.

The foundation of Goldman’s thesis is simple. The 2026 equity market advance has been fueled predominantly by earnings expansion rather than multiple expansion — meaning actual profit growth, not investors willing to pay more for existing earnings.

Snider characterized the upcoming Q2 earnings cycle as “a critical test.” Strong corporate results would provide fundamental support for the rally’s continuation. Disappointing numbers, however, would represent the most significant threat to market stability this year.

Goldman’s Earnings Growth Projections

Goldman’s earnings-per-share projection for the S&P 500 in 2026 sits at $340, representing a 24% year-over-year jump. Looking ahead to 2027, the firm anticipates $385 per share, translating to an additional 13% gain.

FactSet data shows Q2 earnings growth estimates at 22%, a notable increase from the 18.7% expectation at the quarter’s outset. Revenue expansion is forecast at 12.1%, marking the most robust growth rate since the second quarter of 2022.

Market reactions to earnings disappointments have been particularly severe. Companies failing to meet analyst expectations have experienced average stock declines of 4.2%, significantly exceeding the historical norm of 2.9%.

With the S&P 500 currently positioned around 7,365, Goldman’s 8,000 forecast suggests approximately 9% additional upside potential.

Artificial Intelligence Spending Underpins Growth Thesis

According to Goldman’s analysis, AI infrastructure capital deployment will generate roughly half of total S&P 500 earnings growth during 2026.

The biggest technology corporations are projected to allocate approximately $754 billion toward capital expenditures this year. This represents an 83% surge compared to 2025 levels. Goldman forecasts this figure climbing to $905 billion in 2027.

Goldman’s proprietary basket tracking AI data center construction-related equities has delivered nearly 60% returns year-to-date. While semiconductor companies remain the primary direct winners, hardware manufacturers, industrial firms, and utility providers are also experiencing earnings tailwinds.

The S&P 500 currently trades at approximately 21 times forward earnings, a valuation higher than roughly 87% of readings over the past four decades. Goldman maintains that near-record corporate profit margins and comparatively moderate interest rates support this elevated multiple.

The seven dominant technology companies — Nvidia, Apple, Alphabet, Microsoft, Amazon, Broadcom, and Meta — collectively generate a 44% return on equity. Goldman projects this metric will decline by an average of 700 basis points next year as depreciation expenses increase at major tech firms.

Smart Money Retreats From Technology Sector

While Goldman maintains its optimistic earnings outlook, hedge funds are rapidly reducing technology sector allocations.

Goldman’s prime brokerage data revealed that hedge funds liquidated technology stocks during the week ending June 25 at the most intense pace since the firm initiated tracking in 2016.

The Magnificent Seven — Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla — comprised approximately 21.5% of hedge fund U.S. equity portfolios at the beginning of 2026. This concentration has contracted to 14.5%, marking the steepest six-month decline since the 2022 bear market.

This elite group of stocks erased over $2.3 trillion in aggregate market capitalization during June alone.

Goldman’s baseline scenario maintains that robust earnings performance, propelled by AI-related spending, will sustain equity markets through year-end. Q2 earnings reporting commences in mid-July, led by major financial institutions.