Key Takeaways:
A veteran fund manager is betting the S&P 500 will rally roughly 50% to 10,000 by next year, arguing the AI-driven bull market has room to run.
The S&P 500 could surge to 10,000, a roughly 50% gain, as earnings growth accelerates to 26%, YWR fund manager Eric said.
"Earnings growth has shifted from the historical 8% average to 12% to 15%, and we see that accelerating further," Eric said in an interview. "The math supports a P/E re-rating from 20 times to 25 to 30 times."
He projects S&P 500 earnings per share of about $340 for fiscal 2026, representing roughly 25% to 26% growth, with another 20% gain expected the following year. The call is underpinned by near-zero real interest rates — with inflation at about 4% and the 10-year Treasury yield at roughly 4.5% — making equities attractive relative to bonds under the Gordon Growth Model, he said.
The 10,000 target implies a forward P/E of 25 to 30 times, above the historical average of 20 times. Eric warned that the biggest risk is a slowdown in hyperscaler capital expenditure, which could trigger a 40% drawdown in the S&P 500 if data center buildouts pause in 2027.
Why This AI Cycle Differs From 1999
Eric argues the current AI-driven rally is more an earnings bubble than a valuation bubble, unlike the dot-com era. Semiconductor supply chain stocks, including memory chip makers in South Korea, trade at just 6 to 8 times earnings, he noted. By contrast, Cisco Systems traded at 50 times earnings in 1999 and JDS Uniphase at 100 times.
He also pointed to a structural shift in the IPO market. Private equity and venture capital firms now hold portfolio companies longer, often waiting until they reach trillion-dollar valuations before listing. This has reduced the retail euphoria — characterized by first-day IPO pops — that defined the late 1990s, suggesting the current bull market may burn slower and last longer.
Institutional investors remain broadly skeptical, Eric said, with concerns about whether hyperscalers can generate sufficient returns on their data center investments. That caution, he argued, is a contrarian signal that the market has not yet reached a speculative peak.
Sectors to Watch: Exchanges, Energy, and Banks
Eric highlighted CME Group and Intercontinental Exchange as compelling bets, noting both trade at historically low multiples of about 18 times and 15 times earnings, respectively, despite strong earnings quality and cash flow generation. He dismissed the threat from perpetual futures contracts, arguing CME's institutional client base and physical delivery capabilities create a durable moat.
Oil, gas, refining, and shipping stocks are seeing significant earnings upgrades that the market has yet to price in, he said. Disruption to the Strait of Hormuz could create multiyear structural tailwinds for U.S. refiners and global shipping companies, similar to the persistent impact of the Russia-Ukraine conflict.
Eric also maintained a bullish stance on European and Japanese banks, arguing the global banking industry is shifting from post-financial-crisis restraint to a new cycle of regulatory easing and credit expansion. Mitsubishi UFJ Financial Group posted 10% loan growth last year — its first such expansion in years — while European banks trade at 8 to 9 times earnings with profit growth of about 5%, he noted.
He turned cautious on software stocks, warning that the industry faces long-term uncertainty as business models shift from per-seat licensing to API-based usage pricing. That transition, he said, could leave software stocks as "semi-dead money," akin to the current state of office real estate.
This article is for informational purposes only and does not constitute investment advice.
