Bank of America raised its 2026 year-end S&P 500 target to 7,400 from 7,100 and set a 12-month target of 7,800, according to a note dated Sept. 18. The bank also upgraded S&P 500 Communication Services to marketweight, pointing to cloud revenue at the hyperscalers finally catching up to their AI spending.
Bank of America's US Equity and Quant Strategy team lifted its 2026 year-end S&P 500 target to 7,400 from 7,100 and set a 12-month target of 7,800, according to a note dated Sept. 18 shared with TheStreet. Both figures imply modest returns from current levels rather than a runaway rally.
Earnings, not multiples, are doing the work
The bank is forecasting 33% S&P 500 earnings growth in 2026 and 12% in 2027. Still, the risk of a sell-off into year-end remains elevated, the strategy team wrote, because current multiples imply lower inflation than the economy is likely to deliver in the near term.
The AI trade enters a new chapter
BofA also upgraded S&P 500 Communication Services to marketweight from underweight, closing out a June 2025 downgrade. Alphabet and Meta together make up 78% of the sector's weight, and both spent 2026 in the market's penalty box as investors punished the hyperscalers for AI capex growth outrunning cloud revenue growth. That gap is starting to close: BofA now expects cloud revenue at Microsoft, Amazon, Alphabet, and Oracle to outpace capex growth in 2027.
What still worries the bank
Uncommenced leases and non-cancellable contractual promises at the hyperscalers rose more than 50% between some recent quarters, well ahead of the more modest jump in the debt on their books. Long-term earnings expectations for Info Tech now sit at 43%, an all-time high, while Comm Services growth expectations sit at 16%. Meta and Alphabet, however, carry weighted average debt maturities of 17 to 19 years at reasonable coupon rates, based on Bloomberg data cited in the note.
Private-market supply is a lurking risk, too. SpaceX and other large private companies are inching toward public listings, and according to the strategy team's analysis of past IPOs, fund managers tend to "sell old stuff to buy shiny new things" when those deals hit the tape.
For S&P 500 index and target-date fund holders, the arithmetic is straightforward: the 7,400 year-end target implies a modest pullback from current levels, while the 12-month 7,800 call gets back to gains, though not by much.
Source: TheStreet
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