As artificial intelligence continues to dominate market narratives, Citigroup is reframing how investors should think about its impact on US equities.
Rather than focusing on the initial wave of AI infrastructure and hype-driven rallies, the brokerage argues that the next phase for the S&P 500 will be shaped by how effectively companies integrate the technology into their operations.
According to a Reuters report, Citi set out its expectations for the index through 2026, pointing to earnings growth, evolving AI dynamics, and a market that may remain volatile even as underlying fundamentals stay supportive.
Citi sets S&P 500 target
Citi has set a year-end target of 7,700 for the S&P 500 index for 2026.
The forecast implies a gain of about 12.7% from the benchmark’s last close of 6,827.41 points.
Citi’s view is rooted in expectations of continued earnings expansion rather than a sharp re-rating of valuations, notes Reuters.
The brokerage estimates that earnings per share for the index could reach $320 by the end of next year.
This projection stands above current consensus estimates of roughly $310, suggesting Citi expects corporate profitability to remain resilient across sectors.
AI focus shifts to adoption
Artificial intelligence remains central to Citi’s market framework, but the firm expects the theme to evolve.
While AI infrastructure build-out is still seen as a key driver in 2026, as per Reuters, Citi believes investor attention will increasingly shift toward companies that adopt AI rather than those that simply enable it.
According to the brokerage, this transition is likely to introduce a clearer winner-versus-loser dynamic within the market.
Companies that successfully deploy AI to improve efficiency, productivity, or revenue generation could stand out, while others may struggle to justify valuations tied largely to AI exposure.
Market gains and valuation pressure
The S&P 500 has gained about 16% so far this year. That performance has been supported by optimism around AI, strong corporate profits, and expectations that interest rates will move lower.
These factors have helped offset concerns about a potential market bubble and elevated technology valuations.
Citi acknowledges that the market is starting from a high valuation base, which increases pressure on fundamentals to support further gains, states Reuters.
However, the firm does not see this as an insurmountable barrier, provided earnings continue to deliver in line with expectations.
Volatility and alternative scenarios
As the current bull market enters its fourth year, Citi expects periods of volatility to persist.
The brokerage notes that fluctuations could become more pronounced given the level of growth expectations already priced into the market.
Beyond its base-case forecast, Citi outlined a range of potential outcomes for the S&P 500.
In a more optimistic scenario, the index could reach 8,300.
In a downside case, it could fall to 5,700, reflecting sharper pressures on growth or earnings.
Citi’s projection places it alongside several major Wall Street peers. Oppenheimer Asset Management has issued a Street-high forecast of 8,100.
UBS Global Wealth Management also forecast a year-end level of 7,700 for the index in November.
The post Citi says AI adoption, not hype, will be the focus going forward appeared first on Invezz
