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Investing.com -- Jefferies forecasts the S&P 500 will reach a fair value of 7,500 by the end of 2026, implying about 9% upside from current levels, driven by steady earnings growth and continued strength in artificial intelligence-linked stocks.
“We forecast another 9% upside for the S&P 500, with a 2026 target of 7500,” Jefferies head of quantitative strategy Desh Peramunetilleke said in a note, citing “double-digit earnings CAGR” and resilient profitability in technology-related sectors.
The firm prefers “ROIC stars, GARP plays, and select thematic stocks.”
Jefferies noted that while concerns persist about “a potential correction” and “AI unwinding risk,” the rally remains supported by fundamentals.
“After comparing the profitable AI trade to the profitless dotcom bubble, we see more upside despite potential road bumps,” the analyst wrote.
The firm’s 2026 fair value target is based on 2027 forecast earnings per share of 340, representing a 13% compound annual growth rate and a 22x forward price-to-earnings multiple. Its bull case envisions the index reaching 8,100, while its bear case sees 5,400.
Jefferies stated that it expects “robust 13% EPS CAGR for 2026–27,” with margins remaining stable despite possible “top-line downgrades.”
Peramunetilleke added that the firm favors growth-oriented sectors, including communication services, financials, and consumer staples, while remaining neutral on technology and industrials and underweight energy, materials, and consumer discretionary.
“We think [the AI trade] still has legs when compared to dotcom,” he wrote, adding that growth stocks “tend to do well during up-markets” and remain attractively valued at “a 10% discount to the 5-year peak relative PE.”
The firm said it continues to focus on “ROIC stars” while rotating toward growth-at-a-reasonable-price opportunities.