Wall Street investment bank Jefferies has set a new fair value target of 7,500 for the S&P 500 by the end of 2026, implying about 9% upside from current levels. The call rests on expectations of robust corporate earnings growth and the continued strength of artificial intelligence (AI)-related stocks.
The Forecast
Desh Peramunetilleke, Head of Quantitative Strategy at Jefferies, said in a note:
"We predict the S&P 500 still has approximately 9% upside potential, with a target of 7,500 by 2026."
The projection is based on an estimated 2027 earnings per share (EPS) of $340, representing a 13% compound annual growth rate (CAGR) and a forward P/E multiple of 22x.
In its optimistic scenario, Jefferies sees the index reaching 8,100 points. In a pessimistic case, it could fall to 5,400 points.
Why Jefferies Is Bullish
The firm argues that unlike the dot-com bubble, today’s AI investment cycle is underpinned by real profitability. Even if volatility picks up, Jefferies believes fundamentals support further gains.
Key drivers include:
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Double-digit EPS growth through 2027
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Stable profit margins, even if revenue growth slows
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Strong performance from AI-linked industries
The bank favors "star companies with high return on invested capital (ROIC), reasonably priced growth stocks, and thematic plays" that align with long-term structural trends.
Sector Preferences
Jefferies’ sector outlook is nuanced:
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Overweight: Communication services, financials, consumer staples
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Neutral: Technology, industrials
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Underweight: Energy, raw materials, consumer discretionary
The strategy reflects a tilt toward growth-oriented industries while avoiding areas vulnerable to cyclical swings.
AI Spending Still Has Legs
Peramunetilleke emphasized that the AI boom is far from over. He compared the current cycle to a baseball game:
"We are only in the fourth inning."
Jefferies expects AI-related capital expenditures to accelerate through 2026, with debt financing playing a larger role. That could extend the runway for growth stocks, which historically outperform in bull markets.
Currently, growth stocks trade at about 10% below their five-year P/E highs, making them relatively attractive, according to the report.
Risks on the Horizon
Of course, risks remain. Market watchers worry about:
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A potential AI-driven pullback if spending outpaces returns
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Geopolitical tensions and trade disputes
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The possibility of margin compression if inflation resurges
Still, Jefferies maintains that the upward trend is intact, supported by earnings strength and disciplined capital allocation.
The Bottom Line
Jefferies’ 7,500 target for the S&P 500 by 2026 reflects confidence in earnings growth, AI momentum, and high-ROIC companies. While volatility is inevitable, the firm argues that today’s rally is built on sturdier foundations than past bubbles.
As Big Tech earnings roll in, investors will soon get a clearer picture of whether the market can keep climbing—or if the next inning brings a slowdown.