Goldman Sachs warns that the US stock market bull run may be facing its final leg up, with net equity supply projected to hit its highest level since 2000 in 2027.

November 9 — Tony Pasquariello, Goldman Sachs' global head of hedge fund coverage, warned that the three major drivers supporting the U.S. stock market's rally over the past four years—earnings growth, capital flows, and the AI narrative—are all showing marginal deterioration. Although the S&P 500 Index is still expected to complete a final leg higher by year-end, the market in 2027 may face the largest net equity supply shock since the bursting of the dot-com bubble in 2000, and index volatility may also trend higher.

Pasquariello pointed out that S&P 500 earnings growth reached 33% in the second quarter and is estimated at 35% in the third quarter, but growth momentum may be peaking. Goldman Sachs expects S&P 500 earnings per share (EPS) to still grow about 18% in 2027, but changes in AI capital expenditures may bring significant downside risk.

The funding side is also under pressure. Goldman Sachs prime brokerage data show that over the past 20 trading days, hedge funds sold global AI stocks at the fastest pace in more than five years, deviating from the historical average by more than 3 standard deviations. Weaker corporate buybacks, shrinking purchases by overseas investors, and CTA strategies following the selloff have further weakened the market's capacity to absorb supply.

Goldman Sachs expects that IPOs by large companies such as SpaceX and Anthropic, as well as tech giants directing more cash flow toward AI infrastructure construction rather than stock buybacks, will jointly push net U.S. equity supply in 2027 to the highest level since 2000.

The AI narrative is also beginning to diverge. The market expects the pace of capital expenditure growth by tech giants to slow from 96% this year to 44% next year, while hyperscale cloud providers' net free cash flow consumption reached $31 billion in the third quarter. Goldman Sachs believes the market is shifting from previously pricing mainly the growth space brought by AI investment to simultaneously assessing the sustainability of capital expenditures and the uncertainty of investment returns.

On valuations, the Nasdaq 100 Index's forward price-to-earnings ratio has fallen to 18.4 times, the lowest level since 2020. However, Pasquariello cited the views of two veteran investors, saying that the current stock market still appears overly optimistic relative to the credit market, and that pressure on AI-related high-yield bonds may mean the credit market is the first to reflect financing risk.

Another Goldman Sachs strategist, Rich Privorotsky, believes this round of adjustment is closer to the 1998 liquidity event rather than the 2000 dot-com bubble burst, but also acknowledged that the current scale of AI investment and uncertainty over returns bear unsettling similarities to 2000.