Wall Street is betting on another strong year for US stocks, with the S&P 500 expected to gain about 17% over the next 12 months as investors continue pouring money into companies tied to artificial intelligence. Analysts tracked by FactSet Research have set a median 12-month target of 9,106 for the index, compared with its current level of about 7,786.
If the forecast holds, the S&P 500 would deliver a gain well above its average annual return of 9.5% over the past two decades, excluding dividends, according to data cited by The Motley Fool.
S&P 500 market outlook
The bullish forecast comes as investors continue to channel capital into AI-related companies. Wall Street is also expecting solid earnings growth from S&P 500 companies in 2026, with heavy investment in AI infrastructure expected to provide a significant boost. The bigger question, however, is whether the technology boom can generate another major stock-market rally or whether investors have already priced in too much optimism around AI.
The US stock market includes thousands of publicly traded companies. More than 5,500 companies were listed on US exchanges in the first quarter of 2026, according to the Securities Industry and Financial Markets Association, or SIFMA. Investors commonly track the market through major indexes, with the S&P 500, Nasdaq Composite and Dow Jones Industrial Average among the most widely followed.
What is the S&P 500?
Among them, the S&P 500 is generally considered the best overall measure of the US stock market because it covers large companies across different parts of the economy. The S&P 500 was created in March 1957. It tracks 500 large US companies, including both growth and value stocks from different sectors. These companies make up more than 80% of the US equity market by market capitalization, making the index a major indicator of how the broader stock market is performing.
{{/usCountry}}Among them, the S&P 500 is generally considered the best overall measure of the US stock market because it covers large companies across different parts of the economy. The S&P 500 was created in March 1957. It tracks 500 large US companies, including both growth and value stocks from different sectors. These companies make up more than 80% of the US equity market by market capitalization, making the index a major indicator of how the broader stock market is performing.
{{/usCountry}}Companies cannot simply enter the S&P 500. They must meet certain requirements before they can be considered for inclusion, including having GAAP profitability over the previous four quarters, having a sufficiently liquid stock and meeting a minimum market capitalization requirement. The minimum market capitalization requirement cited by The Motley Fool is $22.7 billion.
Biggest S&P 500 stocks
The index is also regularly updated. Its main rebalancing events take place on the third Friday of March, June, September and December. Marvell Technology and Flex joined the S&P 500 in June, according to The Motley Fool. Companies can also be added outside the regular quarterly rebalancing schedule. Reddit is set to join the S&P 500 later this month, replacing AvalonBay Communities. AvalonBay Communities is being acquired by Equity Residential, which is why Reddit is taking its place in the index.
One important feature of the S&P 500 is its heavy exposure to technology. This means the performance of major technology and AI companies can have a major impact on the entire index. Nvidia is the biggest holding listed, with a weight of about 8.1%, according to the data cited by The Motley Fool.
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Apple accounts for about 6.7% of the index, while Microsoft makes up around 5.5%. Alphabet has a 5.4% weighting, followed by Amazon at 3.8%. Other major holdings include Broadcom at 3%, Meta Platforms at 2%, Micron Technology at 1.6%, JPMorgan Chase at 1.5%, Eli Lilly at 1.4% and Tesla at 1.4%, according to The Motley Fool.
AI stocks drive S&P 500
This concentration matters because several of the biggest companies in the index are directly connected to the AI boom. Nvidia sells AI chips, while Microsoft, Alphabet, Amazon and Meta are spending heavily on AI infrastructure and products. The S&P 500 has already delivered strong long-term returns. Over the past 20 years, the index gained about 515% excluding dividends, equal to an annual return of roughly 9.5%, according to the data cited by The Motley Fool.
When dividends are included, the result is even stronger. The S&P 500 generated a total return of about 800% over the same period, equal to an annual return of around 11.6%. Wall Street now expects the next year to be much stronger than that long-term average. S&P 500 earnings are expected to rise 33% in 2026, according to LSEG. That would be a major jump from the 14% earnings growth recorded in 2025.
S&P 500 earnings growth
If the forecast becomes reality, 2026 would see the fastest S&P 500 earnings growth since 2021. Two sectors are expected to lead this earnings growth: technology and energy. Technology is expected to benefit from massive spending on AI infrastructure, as companies continue investing in chips, data centres, cloud computing and other AI-related systems.
The energy sector is also expected to contribute because of elevated oil prices. Stronger corporate earnings are a key reason Wall Street analysts are expecting the S&P 500 to climb sharply over the next year. If companies make more money, investors may be willing to pay more for their shares.
Analysts see especially strong potential in some sectors. Communication services stocks are expected to have about 24% upside, according to the forecasts cited by The Motley Fool. Technology stocks are expected to have around 22% upside, while consumer discretionary stocks are expected to gain about 18%, according to the same forecasts.
Can AI fuel another stock rally?
The AI boom could therefore play an important role in whether the S&P 500 reaches Wall Street's 9,106 target. Many of the index's biggest companies are investing heavily in AI, and investors are expecting those investments to eventually translate into higher revenue and profits. However, Wall Street's 17% forecast is not a guarantee. Stock-market forecasts can be wrong, even when they come from experienced analysts.
Also read: S&P 500 CAPE ratio hits 41: Why investors are watching this market warning sign
S&P 500 risks ahead
Investors also face some seasonal risks. September has historically been a difficult month for the S&P 500. Over the past decade, the index has fallen by an average of about 2% during September, making it the worst month of the year by a wide margin, according to The Motley Fool. Another risk comes from the upcoming US midterm elections. The S&P 500 has historically faced sharp declines around midterm elections because the president's party generally loses seats in Congress.
Losing seats in Congress can create uncertainty around government policy, which can make investors more cautious about the economy and financial markets. This means the S&P 500 could face short-term volatility even if the long-term earnings outlook remains strong. A strong AI story does not automatically mean stocks will rise every month.
The bigger issue for investors is whether AI spending can continue producing real business results. Companies are spending huge amounts on AI infrastructure, but the market will eventually want to see that spending turn into higher sales, stronger profits and better productivity. For now, Wall Street is betting that this will happen. S&P 500 companies are expected to deliver their fastest earnings growth since 2021 in 2026, with AI infrastructure spending playing a major role, according to LSEG-based forecasts cited by The Motley Fool.
If those earnings forecasts hold and investor confidence remains strong, the S&P 500 could rise significantly over the next year. FactSet's median target of 9,106 points to a potential 17% rally from the current level of 7,786. That would put the expected gain well above the S&P 500's 9.5% average annual return over the past two decades, excluding dividends.
Wall Street is expecting a big S&P 500 rally, and AI is one of the main reasons behind that optimism. But the index is entering a period that has historically brought more volatility, while the AI boom still needs to prove that enormous investment can produce equally strong earnings.