AI may generate only half the profit needed to justify the investment, Goldman analyst warns

Market Performance - The S&P 500 reached a new record high of 6,944.82, up 0.62%, while the STOXX Europe 600 also hit a new high [1] - Futures are slightly down in early trading as traders look to lock in gains [1] Capital Expenditure and Forecasts - Analysts expect another year of solid gains for U.S. equities in 2026, forecasting a total return of 12% for the S&P 500, reaching a year-end level of 7,600 [2] - AI capital expenditure (capex) growth is anticipated to slow down in 2026, impacting profit justification for the significant capex [3] Market Dynamics and Risks - The top 10 stocks in the S&P 500 represent 41% of market cap and contributed 53% to the 2025 return, with expectations of AI spending exceeding consensus estimates but decelerating in growth [4] - Capex spending by major tech firms, referred to as "hyperscalers," was approximately $400 billion in 2025, reflecting a 70% annual increase [5] Profitability Concerns - Tech companies have historically generated profits two to three times their investments, but this may not be sustainable [6] - To maintain expected returns on capital, these companies would need to achieve an annual profit run-rate exceeding $1 trillion, significantly higher than the 2026 consensus estimate of $450 billion [6] - The current spending levels and market caps, along with increasing competition, suggest a lower probability that all market leaders will generate sufficient long-term profits [7]