S&P 500's AI Fuel Tank Still Full With 7,700 Target From Citi

Core Viewpoint - Citigroup projects a year-end 2026 forecast for the S&P 500 at 7,700, driven by strong corporate earnings and ongoing support from artificial intelligence investments [1] Group 1: AI and Market Dynamics - The next phase of AI investment will favor companies that adopt the technology rather than those that merely enable it [1] - AI infrastructure development will remain a central theme in 2026, with investors differentiating between winners and losers as fundamentals face pressure from high valuations [2] - Citi's forecast implies a 12.7% upside from the S&P 500's last close of 6,827.41, with projected earnings per share of $320 by the end of next year, surpassing the consensus of approximately $310 [5] Group 2: Market Projections and Comparisons - JP Morgan anticipates the S&P 500 to finish 2026 around 7,500, supported by a resilient U.S. economy and an AI-led investment supercycle [7] - Morgan Stanley expects U.S. stocks to outperform global peers in 2026, driven by accelerating AI-related capital spending and strong earnings growth [8] - The S&P 500 Index has increased by 16% year to date, while the S&P 500 Semiconductor & Semiconductor Equipment Industry Index has surged over 40% [9] Group 3: Volatility and Risk Outlook - Citi warns that as the bull market enters its fourth year, volatility may increase, projecting a bull-case scenario of 8,300 and a bear-case downside of 5,700 [6]