Investing.com -- Goldman Sachs reported that the S&P 500 has reached new record highs, driven by positive earnings revisions and strong first-quarter results. The index has gained 8% year-to-date as of Monday.

First-quarter earnings for S&P 500 companies showed year-over-year EPS growth of 17%, excluding certain one-time items. The rally has been accompanied by 13% growth in 12-month forward EPS estimates, while the price-to-earnings multiple declined 4%.

Corporate spending patterns have shifted significantly during the first quarter, with S&P 500 companies reporting 38% year-over-year growth in capital expenditures compared to just 1% growth in buybacks. Goldman Sachs forecasts this trend will continue through 2026, with capex expected to grow 33% to $2 trillion while buybacks increase just 3% to $1 trillion.

AI hyperscalers are leading the capex surge, with projected spending of $755 billion in 2026. The trend toward increased investment spending extends across most sectors.

Investors have favored companies investing in growth over those returning cash to shareholders in recent months. The preference for growth investment has been particularly evident in AI-related companies. Meanwhile, the war's impact on economic growth and Federal Reserve policy outlooks has ended the equity market rotation away from quality stocks that characterized much of 2025.

Goldman Sachs expects investors to continue rewarding companies investing in secular growth opportunities, though geopolitical and AI-related developments will influence how returns on current investment spending are assessed.

The firm also anticipates that companies returning cash to shareholders and those with strong balance sheets will maintain premium valuations. Weak buyback growth should support a scarcity premium for cash-returning companies, which have historically outperformed. Rising debt costs should continue supporting a valuation premium for balance sheet strength.