Wall Street strategist Ed Yardeni has adjusted his timeline for the S&P 500 to reach 7000 points, now anticipating the milestone in early 2025. This represents a slight delay from his previous projections. However, Yardeni remains confident in the market’s overall trajectory, maintaining his forecast that the benchmark index will climb to 7700 by the end of 2026.
Yardeni suggests that the AI bubble, while not bursting, is experiencing a moderation, which he views as beneficial for the long-term sustainability of the current bull market that began in October 2022. His analysis comes after a recent rebound in tech stocks. He notes that investors have become wary of projecting or understanding the accounting practices related to GPU chips purchased by hyperscalers.
According to Yardeni, the forward price-to-earnings ratio of the ‘Magnificent Seven’ companies has decreased from 31.0 to 28.1 since late October. This decline reflects concerns that these companies, given their significant capitalisation share, might be inflating their earnings by depreciating GPU chips over an extended four-to-six-year period, rather than a shorter one-to-three-year timeframe.
Yardeni highlighted investor unease regarding the service life of GPUs, particularly with the rapid introduction of advanced versions. This issue remains unresolved and represents a significant ‘known unknown’ affecting market sentiment and valuation, especially concerning the tech sector’s earnings sustainability.
