The S&P 500 hit a new record high yesterday, up 0.62% at 6,944.82. Futures are marginally down this morning, as might be expected from traders who want to sell up and lock in some of those gains. The STOXX Europe 600 also hit a new high yesterday and was flat in early trading this morning.

Much of the bullishness is coming as analysts realize that the massive amounts of capital expenditure (capex) on building out AI data centers isn’t likely to stop anytime soon.

The result of all that new spending will be that “we expect another year of solid gains for U.S. equities in 2026. We forecast an S&P 500 total return of 12% to a year-end level of 7,600,” Goldman Sachs analyst Ben Snider and his colleagues told clients in a note sent this morning.

However, the wrinkle for 2026 will be that AI capex growth will start to slow down, he said. In turn, the amount of profit needed to justify all that capex won’t show up, Snider et al argue, and that will cause traders to pick and choose winners and losers among the big tech firms of the S&P 500.

“The 10 largest stocks in the S&P 500 account for 41% of market cap and drove 53% of the S&P 500 2025 return. We expect AI spending will exceed consensus estimates this year but begin to decelerate in growth terms while corporate adoption increases, causing rotations among the largest U.S. tech stocks that create two-way risk for the aggregate index,” he told clients.

Capex spending by the big “hyperscalers” (Meta, Amazon, Alphabet, etc.) was roughly $400 billion in 2025, up 70% annually, Goldman calculates. The big tech companies have also started to fund much of that growth with debt.

“As spending and debt grow, so do the necessary eventual profits to justify ongoing investments,” Snider says.

So far, tech companies have been happy to spend that money because the profits they generated were two or three times as much as they invested, Goldman estimates. The problem is that that might be unsustainable, Snider says. “Given consensus estimates for an annual average of $500 billion in capex from 2025-2027, maintaining the returns on capital to which their investors have become accustomed would require these companies to realize an annual profit run-rate of over $1 trillion, more than double the 2026 consensus estimate of $450 billion in income,” he wrote.

While some of these companies will successfully generate the profits they need, others won’t, he says. “The magnitudes of current spending and market caps alongside increasing competition within the group suggest a diminishing probability that all of today’s market leaders generate enough long-term profits to sufficiently reward today’s investors.”