Evercore ISI sees US stocks rising another 20% by 2026 on AI optimism

Evercore ISI forecasts the S&P 500 to reach 7,750 by 2026, a 20% increase, driven by the transformative impact of artificial intelligence on corporate earnings and valuations, which they describe as "bigger" than the internet. While AI has already propelled tech giants like Nvidia, Meta, and Microsoft, the firm also outlined a wide range of potential outcomes, from a bullish 9,000 to a bearish 5,000, underscoring significant market uncertainty despite this ambitious, AI-fueled optimism.

Analysis

Evercore ISI has issued a notably ambitious long-term forecast for the S&P 500, targeting 7,750 by the end of 2026, which implies a 20% upside from current levels. The core thesis rests on the transformative impact of artificial intelligence, which strategists at the firm believe is a more significant technological revolution than the internet. This optimism is substantiated by early evidence, including second-quarter results delivering double-digit earnings growth and broad upside surprises attributed to AI adoption. The performance of technology leaders such as Nvidia, Meta Platforms, and Microsoft, all gaining over 20% year-to-date, is cited as a key indicator of this trend. However, the forecast is framed by significant uncertainty, with a bull case scenario of 9,000 driven by accelerating confidence and a bear case of 5,000 contingent on persistent inflation and faltering economic growth. Contradicting the long-term bullishness, Evercore has revised its year-end 2024 target down to 6,250, below the recent close of 6,460, signaling potential for near-term market consolidation or a pullback.

Key Decisions for Investors

• Investors with a long-term horizon should maintain strategic exposure to AI leaders like Nvidia, Microsoft, and Meta, as the core thesis projects AI as a primary driver of earnings growth through 2026.
• Given the wide divergence between the bull (9,000) and bear (5,000) case scenarios, it is critical to monitor macroeconomic indicators for signs of persistent inflation or faltering growth, which could trigger the bearish outcome.
• The downward revision of the 2024 year-end target to 6,250 suggests near-term caution is warranted, and tactical investors might consider trimming positions after recent gains to manage risk ahead of potential short-term volatility.