The US equity market's sustained rally stems from actual earnings growth rather than speculative valuation inflation, according to Goldman Sachs' chief US equity strategist. Despite concerns about an AI-driven bubble, S&P 500 companies delivered 18% year-on-year earnings per share growth in the first quarter, with median performance at 14% across all sectors.

Forward-looking estimates tell an even stronger story. Analysts have raised S&P 500 earnings forecasts for 2026 and 2027, with upgrades outpacing downgrades in every sector. The index has climbed 10% year-to-date while forward estimates rose 15%, pushing the forward 12-month P/E ratio down from 22 to 21 times.

AI investment spending drives this earnings momentum. The five largest hyperscalers — including Alphabet, Amazon, Meta Platforms, Microsoft, and Oracle — will spend $755bn on capital investment this year, an 83% increase. Semiconductor stocks and related infrastructure companies have surged 33% alongside 30% earnings estimate gains.

Despite risks from high market concentration — where the top 10 companies represent 41% of index market capitalization — and macroeconomic pressures from oil shocks, earnings momentum continues unabated. The market's focus on near-term fundamentals rather than speculative multiples suggests the rally has genuine underlying support.