Evercore ISI analysts increased their year-end price target for the S&P 500, citing the transformative power of artificial intelligence (AI).
In their note titled "The AI Revolution is in the Early Innings," Evercore ISI boosted their target to 6,000, a Street high, up from their previous estimate of 4,750.
This bullish outlook rests on several factors, according to Evercore ISI. The lingering effects of the pandemic, including stimulus and low consumer debt, combined with the burgeoning potential of AI, create a "Goldilocks" economic environment of slowing inflation, potential Fed rate cuts, and steady growth.
"Today, Gen AI's productivity potential in every job and sector is inflecting," the firm states. This, along with improving corporate earnings, justifies the significant target increase. Evercore ISI forecasts earnings per share (EPS) to reach $238 in 2024 and $251 in 2025, translating to 8% and 5% growth, respectively.
The analysts acknowledge the elevated price-to-earnings (PE) ratio of 25 at the target price but downplay concerns. "High multiples are supported by companies' proven record of managing costs and maintaining/growing margins," they explain. Additionally, they point out that while historically high, the PE ratio remains below the dot-com peak of 28.
Evercore ISI also sees room for further gains beyond their base case. They envision a bull-case scenario reaching 6,500, fueled by continued AI excitement and abundant liquidity.
Conversely, the bear case would be a recession or a more volatile market correction potentially dragging the index down to their previous target of 4,750.
Evercore ISI upgraded the Technology sector to Outperform due to its alignment with AI trends and the persistence of investor optimism.