Investor enthusiasm around artificial intelligence has once again boosted the “The Magnificent Seven” technology stocks towards another record year, with Tesla (TSLA), Meta (META), Amazon (AMZN), the alphabet (GOOG, GOOGLE) and Apple (AAPL) stocks have all recently hit record highs while Nvidia (NVDA) stocks are up more than 175% this year.
Next year, investors expect the hype to spread even further to areas such as utilities and software, which will continue to benefit from big tech’s big bet on AI. David Kostin, chief U.S. equity strategist at Goldman Sachs, forecasts that the S&P 500 (^GSPC) will reach 6,500 by the end of 2025 and the rest of the market gains will get closer to those of large-cap technology stocks.
“It’s less about valuation and more about earnings growth that will dictate these returns,” Kostin said during a media roundtable with reporters at Goldman Sachs 2025. “Narrowing the gap between growth rates is likely to lead to a reduction in (the difference in) performance.”
The rapid earnings growth seen in large caps over the past 18 months is expected to slow, while earnings are expected to accelerate for the other 493 stocks in the S&P 500.
BofA’s equity strategy team, led by Savita Subramanian, released a year-end target of 6,666 for the S&P 500 in 2025 which includes call for expanded income driven in part by AI.
“AI definitely plays a role in the 2025 outcome,” Subramanian told Yahoo Finance. “And in fact, one of the reasons we’re optimistic about earnings broadening is the idea that instead of everyone spending on technology investments, technology investments are actually increasing, and technology companies are kind of spending across a wider range of industries.”
To return to Subramanian’s point, Microsoft (MSFT), Amazon, Alphabet and Meta alone are expected to have increased their capital spending by 42% in 2024 and another 17% in 2025, bringing their total spending next year to $244 billion. Not all of this spending is on AI chips. Tech companies are also increasing spending to finance the energy needed to run AI data centers.
During a 2025 outlook roundtable with journalists, BlackRock’s Investment Institute highlighted that the power required to run a data center is roughly equal to the average amount of energy used in a day by the entire city of New York. This leads strategists, including BofA’s Subramanian, to be optimistic about companies exposed to this part of technology development, including the utilities sector (XLU), already increasing by more than 20% in 2024, partly driven by AI optimism.