Wall Street forecasters see tumbling corporate earnings hobbling the stock market in 2027

The market has plenty on its mind: the Iran war, hotter inflation, and the scandal around Nvidia CEO Jensen Huang, to name a few. But there’s one risk quietly looming heading into 2027: A sharp earnings slowdown.

Earnings are the engine of the stock market’s four-year-old bull market, but growth could soon come down, some analysts say, pointing to an expected drop in corporate earnings momentum as AI investment slows. The result could be a volatile 2027 for stocks, with valuations already beginning to come down as the market prices in a slower pace of earnings expansion.

Earnings growth has been stellar this year, which has sparked concern that the market is in the midst of an earnings bubble. For the third quarter, the S&P 500 is on track to post a blended annual earnings growth rate of 31.4%, per the latest FactSet update. That’s above the average annual earnings growth rate of 14.8%, according to Multpl data from 1989 through the end of 2024.

Goldman Sachs says it expects earnings growth to fall considerably over the next year, from a 36% annual pace in 2026 to 11% in 2027.

The bank said earnings look poised to decelerate largely due to hyperscaler capex slowing, while costs associated with the AI boom, such as interest expenses, rise. Amazon, Alphabet, Meta, Microsoft, and SpaceX are expected to spend more than $800 billion on capex in 2026, a record high.

Stock valuations have also dropped sharply, Goldman noted, pointing to how expectations for slower economic and earnings growth were already starting to be priced in.

“2026 was the year of strong earnings,” a team led by the bank’s Peter Oppenheimer said. “As we enter 2027, earnings growth is on course to slow sharply across all major regions, growth in AI capex spending is likely to peak and the cost of capital remains elevated.”

“We expect equities to continue to rise, but with volatility,” the bank added.

Raymond James said it was expecting earnings growth to normalize in the next year, pointing to the expected slowdown in AI spend. The firm said earnings per share growth in the S&P 500 could fall from 28% this year to 23% in 2027, attesting to earnings “decelerating y/y more severely” after the first quarter.

“This is driven by AI comps getting more difficult (although material slowing likely is more of a 2028 vs. 2027 theme),” Tavis McCourt, a strategist at the firm, wrote.

Strategists at Ned Davis Research called the outlook for earnings growth heading into next year “questionable.” The research firm pointed to how the number of S&P 500 companies beating expectations has dropped slightly, one sign earnings optimism “has been overdone.”

Of the S&P 500 firms that have reported third-quarter results so far, 84% have beaten on earnings per share estimates, on track to fall below last quarter’s 86%, according to FactSet.

“The upside potential, however, may be limited by valuations if earnings growth decelerates,” the firm wrote of its 2027 market outlook, adding that the bull market in stocks had already stretched on for an “unusually” long time.

“That would make it more likely that earnings yields would decline on market strength and that equities would be vulnerable to a bull market peak by mid-year,” strategists added.

Markets are entering the new year flashing new sensitivities within the AI trade, with tech stocks seeing outsized volatility lately as investors panic about capex and the future for artificial intelligence with Jensen Huang out as Nvidia’s CEO. Fears in the market have started to splinter off into multiple directions, with investors being simultaneously afraid of too much and too little spending on data centers and the ramifications either could have on the AI trade at large.