Investing.com -- Capital Economics reiterated its view that the S&P 500 “will thrive in 2025” following Donald Trump’s announcement of the Stargate joint venture (JV), which aims to invest $500 billion over four years to develop AI infrastructure in the United States.
Key equity investors in the JV include SoftBank (TYO:9984), taking on financial responsibility, OpenAI, overseeing operations, as well as Oracle (NYSE:ORCL) and MGX, Abu Dhabi’s AI-focused investment vehicle.
Trump’s backing of what he termed the "largest AI infrastructure project in history" is expected to lead to substantial investments in data centers, chip manufacturing, and power plants to bolster the US AI ecosystem.
According to Capital Economics, the involvement of Japan-based Softbank (OTC:SFTBY) in the initiative underscores Trump’s openness to foreign collaboration in America’s AI ambitions, provided the firms are from allied nations.
“The new president seems much less keen than his predecessor on imposing checks and balances on the spread of Al,” the firm notes.
Trump has also reversed several of Biden’s executive orders, including those focused on AI development regulations and clean energy, indicating a less restrictive approach to the AI sector’s growth, even if it requires increased use of "dirty" energy.
Capital Economics’ bullish view on the S&P 500 is underpinned by the belief that AI benefits will materialize swiftly within the index, even if more gradually throughout the broader US economy. Trump’s pro-AI policies are seen as reinforcing this view, and the research firm stands by its forecast that the index will reach 7,000 by the end of 2025.
“We can’t see much sign of demand for Al faltering, which is perhaps the biggest risk to our view. Indeed, plans to ramp up Al investment suggest the opposite,” it continued.
“An oft-repeated argument is that some Big Tech firms, which have been at the centre of the Al revolution and investment boom, are ’priced for perfection’, given the speeds at, and amounts by, which analysts expect their earnings to grow. Yet, so far, in general, they have mostly exceeded expectations for EPS growth.”
Despite acknowledging potential risks such as economic downturns, rising bond yields, antitrust regulations, and geopolitical tensions, Capital Economics does not anticipate these factors to derail the S&P 500 rally this year.
The firm also predicts a significant market correction in 2026 but does not expect this to signal an end to AI’s influence.