Morgan Stanley’s chief cross-asset strategist says the S&P 500 has a meaningful runway ahead, driven by an earnings story that is already delivering at historically strong levels and an AI capital spending cycle that is growing faster than almost anyone anticipated a year ago.
In a new episode of Morgan Stanley’s Thoughts on the Market podcast, Serena Tang says the firm’s US equity strategist has set a mid-2027 S&P 500 target of 8,300, supported by expected earnings growth of 23% in 2026 and 12% in 2027.
On the earnings picture, Tang says the most recent quarter delivered a striking result.
“The median S&P 500 company delivered a 6% earnings surprise in the first quarter, the strongest in four years. Earnings revision breadth also improved sharply. AI explains a major part of that strength.”
Turning to the AI spending cycle, Tang says the numbers have moved dramatically even relative to projections made just one year ago.
“A year ago, we projected combined CapEx for the biggest hyperscalers at around $450 billion in both 2026 and 2027. Now, that estimate has moved to roughly $800 billion in 2026 and $1.16 trillion in 2027. AI infrastructure, data centers, power, chips, networks, should shape equities, credit, rates, and even commodities for years to come.”
But Tang says the same AI boom that is driving earnings also carries a less discussed risk on the credit side, one that investors should not ignore.
“Building all those data centers, chips, power systems, and networks require significant investment. And companies won’t fund all of it with cash. Many will borrow. That means more corporate bonds coming to market, especially from high-quality US companies. Even if those companies look financially healthy, investors may demand better terms when they have so many new bonds to choose from. So AI can support earnings, but it can also put some pressure on credit markets.”
As of Friday’s close, the S&P 500 is trading at 7,408.
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