Stocks could surge another 15% this year with mega-cap tech leaders still nowhere near bubble peaks, Goldman says

• The stock market could rise another 15% in Goldman Sachs' bull-case scenario.
• The bank said mega-cap tech stocks can drive the stock market higher as they continue to grow earnings faster than the rest of the market.
• "Although AI optimism appears high, long-term growth expectations and valuations for the largest TMT stocks are still far from 'bubble' territory," Goldman Sachs said.

The stock market could surge an additional 15% by the end of the year in a bull-case scenario, according to a recent note from Goldman Sachs.

The bank said continued "exceptionalism" from the mega-cap tech stocks could drive the S&P 500 to as high as 6,000.

Such an upside scenario is possible because according to Goldman Sachs, tech stocks are not yet in a bubble as investors focus more on profitable growth and less on speculative companies that have yet to turn a profit.

"We previously argued that the current growth stock rally is different from the 2021 and Tech Bubble experiences because investors today focus on profitability," Goldman Sachs' chief equity strategist David Kostin said.

Kostin highlighted current long-term growth expectations for the S&P 500 of 11%, which is slightly slightly above the 9% average, but still below the 13% peak seen during the 2021 stock market frenzy and the 16% peak seen during the dot-com bubble in 2000.

"Although AI optimism appears high, long-term growth expectations and valuations for the largest TMT stocks are still far from 'bubble' territory," Goldman Sachs' chief equity strategist David Kostin said.

And while some investors have pointed to the concentration in mega-cap tech stocks as a reason for worry, Goldman Sachs says that concentration makes sense because the companies are growing at a much faster pace than the rest of the stock market.

Annualized sales growth for the Magnificent 7 tech stocks is expected to be 12% from 2023 through 2025, according to Goldman Sachs. That's four times the 3% growth rate expected for the other 493 S&P 500 stocks over the same time period.

Another indicator of a bubble in the stock market is the valuation spread between the market-cap-weighted S&P 500 and the equal-weighted S&P 500, and that's not flashing any warning signs just yet, according to Goldman.

The valuation premium of the cap-weighted S&P 500 relative to the equal-weighted S&P 500 hit 100% during the 2000 dot-com bubble and 30% in 2021. Today, the premium is at about 24%.

Finally, Goldman Sachs said that a key takeaway from Nvidia's GPU Tech Conference last week is that the AI boom does not appear to be slowing down anytime soon.

"Takeaways from NVDA's GTC were encouraging and point to conditions of strong demand and constrained supply," Kostin said.