U. S. Equity Market: AI-Driven Rally Fuels Split Views Over Bubble Risks

It is hard to quantify how much longer the latest U.S. stock rally can run. Even as major benchmarks keep grinding higher, top Wall Street strategists stand deeply divided over the market path. Bullish bets on an AI-fueled supercycle run counter to growing warnings of stretched valuations and a looming asset bubble.

Kriti Gupta, Global Investment Strategist at JPMorgan, remains highly upbeat on AI’s upside potential. “We expect the S&P 500 to break above 9,000 in the next 12 months, representing a 22% upside from current levels. The AI supercycle could be bigger than consensus expects, and productivity gains may drive earnings growth above 10% without stoking inflation,” she noted. The firm argues the AI growth narrative still has ample room to unfold. Gains in productivity will bolster corporate earnings, while keeping inflation pressures in check.

Morgan Stanley also projects further gains for U.S. equities. Michael Wilson, the bank’s Chief U.S. Equity Strategist, highlighted solid tailwinds from policy and industrial cycles. “2026 is the year of risk restart. A policy triumvirate—fiscal, monetary, and deregulation—will act in concert, and the AI capex cycle is still early. We raise our S&P 500 target to 7,800 for year-end.” With policies aligned and AI capital spending still in its early stage, the team sees the uptrend extending through the rest of the year.

By contrast, Michael Hartnett, Chief Strategist at Bank of America, downplayed the rally’s outlook and issued a clear bubble warning. He pointed to strong price momentum, upbeat retail sentiment and muted volatility as classic signs of an overheated market. “Price action is strong, retail is bullish, volatility is low… it’s a bubble. When you add in mega IPOs like SpaceX and OpenAI, market concentration could exceed the peaks of the Roaring Twenties, the Nifty Fifty, Japan in the 1980s, and the TMT bubble in the 1990s.” He urged investors to stay cautious, expressing little confidence that the current rally can endure over the long term.

Wall Street firms continue to hold diverging views on where the S&P 500 heads next. Optimists lean into sustained momentum from artificial intelligence and supportive policies. Skeptics warn extreme market concentration and rich valuations will eventually trigger a pullback. For the time being, equities will keep trading between solid fundamental drivers and rising downside risks.