Barclays hikes S&P 500 forecasts on AI-led earnings strength

Investing.com -- Barclays has raised its earnings and price targets for the S&P 500 in 2025 and 2026, citing stronger-than-expected results in the first half of the year and a resilient earnings backdrop despite trade and labor headwinds.

The bank now sees the index reaching 6,450 by the end of 2025, up from its prior 6,050 forecast, based on earnings per share of $268 versus $262 previously.

For 2026, Barclays raised its target to 7,000 from 6,700, on EPS of $295 compared with $285 earlier.

“Strong corporate earnings and AI-centric growth offset by emerging labor market risks,” the strategists led by Venu Krishna said, adding that three expected Federal Reserve rate cuts this year should help balance risks in the U.S. economy.

Earnings have been running ahead of expectations, with Big Tech and Financials driving much of the momentum. The strategists said tariff impacts have proven “less severe than initially anticipated,” though some effects could spill into 2026.

They also pointed to new tax provisions that should provide a boost to GDP through 2026.

Still, they described consensus estimates as “overly optimistic,” projecting $268 in EPS for 2025 versus the Street’s $269, and $295 for 2026 compared with consensus at $307.

Sector calls were also adjusted. Barclays upgraded its stance on the broader technology space, saying disruption fears in software look overdone and that ongoing data center demand is keeping fundamentals intact.

“We now have a Positive view on the entire Tech space, upgrading ‘Rest of Tech’ to Positive,” the strategists wrote.

Financials also remain Positive, while Healthcare and Materials were shifted to Neutral. At the same time, the bank kept a Negative view on Consumer, Industrials and Energy.

The strategists acknowledged macro risks, particularly a weakening labor market, with unemployment at a three-year high. But they expect equities to benefit from immediate-term rate cuts and favorable seasonality later in the year.

“Macro is under pressure, but we take the ’glass half full’ view,” the team wrote.

Barclays’ bull case sees EPS at $273 in 2025 and $309 in 2026, while the bear case foresees $260 and $278, respectively.

You May Also Be Interested In