Stay long AI-capex winners into the peak, Stifel says despite bubble fears

Investing.com -- Stifel has raised its year-end S&P 500 target to approximately 7,800, arguing that strong earnings growth will continue to drive the index higher even as valuation multiples compress and bubble comparisons to the late 1990s mount.

Analyst Thomas Carroll wrote in a note that the firm is lifting its target by around 4% from current levels, underpinned by a forecast for trailing twelve-month S&P 500 earnings per share of roughly $337, representing 26% growth.

The bank attributed the advance to a "running hot" economy and strong operating leverage driving profit expansion.

Despite acknowledging that AI-related trades are "echoing the late-1990s hardware mania," Stifel said it would maintain its positioning.

"We stay long AI-capex winners into the peak, with eyes wide open," Carroll wrote, even as the bank expects price-to-earnings multiples to compress under a more hawkish Federal Reserve.

Stifel flagged stock concentration at 40-year highs and said peaking dispersion signals a rotation out of mega-caps into equal-weight indices.

The bank described the U.S. economy as reflecting a bifurcating "Tale of Two Economies," where booming AI fixed investment is outperforming squeezed consumers.

With core inflation remaining well above 2%, Stifel expects the Fed to pause rather than hike. Its sector playbook favors investment cyclicals, including energy, industrials, materials and select semiconductors and hardware, while remaining underweight consumer-facing names and hedged with defensive value exposure, with healthcare its preferred pick in that category.

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