Goldman Sachs bumps its S&P 500 price target for the 3rd time this year as it sees higher corporate profits ahead

• Goldman Sachs raised its S&P 500 year-end price target to 6,000, implying a 5% gain.
• The increase follows the previous price target raises from 4,700 to 5,200 and then to 5,600.
• Goldman said margin expansion, a semiconductor cycle recovery, and AI trends should boost earnings growth.

Strategists at Goldman Sachs raised their S&P 500 year-end price target for the third time this year.

In a note on Friday, Goldman's David Kostin said he now expects the S&P 500 to finish the year at 6,000, representing the second-highest target among Wall Street strategists.

With the S&P 500 trading at around 5,720, Kostin's target implies a potential return of about 5% with just under three months left in the year.

The price target increase comes after Kostin and his team set an initial year-end S&P 500 price target of 4,700 late last year. The team then raised their price target to 5,200 in February and once again to 5,600 in June.

Kostin also raised the bank's 12-month S&P 500 price target to 6,300 from 6,000.

"The primary driver of the upward revision to our 2025 EPS estimate is greater margin expansion," Kostin said. "We expect sales will grow by 5%, roughly in line with nominal GDP growth. However, we now expect 78 bp of net margin expansion in 2025, compared with 24 bp previously."

Kostin said his assumptions are based on a relatively "steady" macro economic outlook, with US real GDP growing at an average pace of 2.3% in 2025 and 2.0% in 2026.

At the micro level, Kostin highlighted three reasons he expects higher corporate profits in the year ahead.

First, Kostin said idiosyncratic charges and write-downs for a handful of S&P 500 companies weighed on corporate profits in 2024 and should moderate in 2025. Those companies include Bristol-Myers Squibb, Gilead, and Warner Bros. Discovery.

Second, Kostin believes a recovery in the semiconductor cycle should boost technology companies' earnings per share in 2025.

"Shipments of integrated circuits excluding memory chips, a predictor of Semis margins, are roughly 10% below their historical trend. Reversion to trend should lead to margin expansion through 2026," Kostin explained.

Finally, mega-cap tech companies should continue to see solid profit growth, in part thanks to AI trends.

"While the magnitude of beats may moderate, the recent GS Communacopia Conference indicated strong ongoing AI demand that should benefit these stocks," Kostin said.

Kostin's price target forecasts assume the S&P 500 continues to trade at a premium valuation of about 22x forward earnings. If that earnings multiple drops, it would threaten Kostin's bullish outlook.

"If prospects for growth weaken, the S&P 500 could trade at 18x (5400, 6% downside)," Kostin said.