The S&P 500 has climbed for nine consecutive weeks, touching fresh all-time highs as artificial intelligence stocks continue to gain. A handful of AI-linked chip stocks have tripled in value since January, and investors are pouring capital into semiconductor names with growing conviction. Goldman Sachs raised its year-end S&P 500 target on May 26, 2026, while a separate strategy note from the bank earlier that month flagged two specific risks that have historically ended high-valuation bull markets.Goldman flags speculation and a weakening economic backdrop as two threats to the rallyGoldman raised its year-end S&P 500 price target from 7,600 to 8,000, representing 6.4% upside from the index’s May 26 close of 7,519.12. The first risk the bank flagged involves excessive speculative activity that pushes stock valuations to unsustainable levels and increases vulnerability to shocks. The bank pointed to surges in investor risk appetite and momentum-driven trading as evidence that speculation is building. Goldman strategist Peter Oppenheimer and his team had flagged those dynamics in a separate May 19 note titled “Momentum risks yielding to bonds.”The May 26 report, authored by Goldman strategist Ben Snider, reinforced those concerns while raising the year-end S&P 500 target to 8,000.More Dividend stocks:Costco quietly bumps its quarterly dividend by 13%Early SCHD ETF investors now earn a 12.5% dividend yield on costS&P 500 index dividend yield hits nearly 50-year lowThe second risk centers on a deteriorating fundamental economic backdrop, typically characterized by rising interest rates and declining growth. High oil prices tied to the ongoing conflict involving Iran could weaken consumer spending, squeeze corporate margins, and drive inflation higher, Goldman warned.Goldman still views the economic outlook as more positive than negative, largely because AI data center investment continues at extraordinary levels. However, the bank emphasized that tightening financial conditions combined with slowing growth have historically derailed overextended markets in past cycles.Chip stocks dominate S&P 500 gains as AI demand surgesGains in the current rally have concentrated in a handful of semiconductor names benefiting from the surge in data center demand. Memory chip maker Micron crossed the $1 trillion market capitalization threshold after its shares surged nearly 20% in a single trading session.Micron (MU) has more than tripled in value year to date, crossing the $1 trillion market capitalization threshold. Fellow data storage plays SanDisk (SNDK), Seagate Technology (STX), and Western Digital (WDC) have also posted triple-digit gains this year, while Intel (INTC) has tripled in 2026 amid the AI-driven semiconductor rally.Earnings growth has powered the entire S&P 500 return so far this year, and we expect this dynamic to continue in the coming monthsGoldman’s Oppenheimer said 2026 returns are likely to come from profit growth rather than from investors paying higher prices for the same stocks.Goldman warned that semiconductor stock gains have recently outpaced the earnings growth analysts expect, a gap that may signal overvaluation in the sector. That disconnect challenges Oppenheimer’s thesis that 2026 returns will come from profit growth rather than from rising market valuations.Initial public offering activity has risen without reaching the peak volumes that defined the frenzied market tops of 1999 or 2021. When a handful of names drive the majority of index returns, any reversal in those stocks carries outsized consequences for broader market performance.
A handful of AI-driven semiconductor stocks have powered the market higher, raising concerns about concentration risk and stretched valuations.Bloomberg/Getty Images
Bank of America strategist says the S&P 500 is overvalued on nearly every measureGoldman is not alone in flagging concentration risks, as other prominent Wall Street voices have raised similar concerns about this rally. Savita Subramanian, head of equity and quantitative strategy at Bank of America Securities, said that the premium investors currently pay for high-sales-growth companies has reached its highest level in at least 20 years, citing BofA research in the May 28 “Squawk Box” segment.Companies dominating the S&P 500 are AI leaders whose valuations are built on future promises rather than current earnings, Subramanian observed.On the CNBC segment, Subramanian pointed to sectors such as materials and energy as alternatives that offer exposure to economic growth without the elevated AI-related price premium.Bank of America has flagged the S&P 500 as overbought on 18 of the 20 valuation measures the firm tracks. Her perspective aligns with Goldman’s view that the rally’s strength may be concealing vulnerabilities that could surface if conditions shift quickly. Goldman holds a bullish outlook even as accumulating risks demand attentionDespite its warnings, Goldman Sachs has not turned bearish and continues to project meaningful upside for the U.S. market through December 2026. However, the bank stressed that risks are accumulating on multiple fronts. Benefits from last year’s tax cuts are fading while headwinds from elevated energy prices and geopolitical uncertainty tied to Iran are intensifying. Goldman’s strategists said a sustained rise in bond yields or a sharp pullback in AI capital spending would be the clearest signals that the rally’s foundation is cracking.Related: Goldman Sachs massively resets Snowflake stock price target for 2026