Senior Fund Manager: The S&P 500 Will Climb Above 10,000 Points Next Year, and the Bubble in This AI Bull Market Falls Far Short of 1999

A veteran fund manager insists on his aggressive bullish view—the S&P 500 will reach 10,000 points next year, up about 50% from current levels. He believes the current AI-driven bull market is far from reaching the heights of the 1999 dot-com bubble in terms of valuation and sentiment, while the inflationary environment, accelerating corporate earnings, and low real interest rates together form a solid foundation for the stock market's upward trend.

In an interview, YWR fund manager Eric stated that the S&P 500 earnings growth rate has jumped from the 25-year average of 8% to the current 12% to 15%, with earnings for fiscal year 2026 expected to grow approximately 25% to 26% year-over-year, maintaining the expectation of continued growth of about 20% over the next year.

He emphasized that institutional investors are generally cautious or even pessimistic, and the AI bubble theory is rampant, but the market has not shown the euphoria seen in 1999, which precisely means the bull market has not yet reached its end.

Eric also warned that the truly underestimated risk is not a market crash but "non-participation" itself—in an inflationary environment, nominal asset prices continue to rise, and investors without equity holdings face a "slow-motion collapse" of their real purchasing power. Citing observations from Zimbabwe's hyperinflation, he noted that in such an environment, those who suffered the most were those who held no assets.

"S&P 10,000": The Dual Logic of Earnings Acceleration and Valuation Revaluation

Eric's core argument is built on the continuous acceleration of corporate earnings and the restructuring of the valuation system. He pointed out that the S&P 500's nominal earnings have grown at an average annual rate of about 8% over the past 25 years, while the current growth rate has reached 12% to 15%, with 2026 earnings expected to be around $340 per share. In this context, he believes it is mathematically reasonable to raise the price-to-earnings ratio from the historical average of 20 times to 25 to 30 times.

He cited the Gordon Growth Model to explain this logic: when the nominal growth rate approaches the cost of capital, the reasonable valuation multiple mathematically tends toward infinity. In the current environment with inflation around 4%, the 10-year Treasury yield around 4.5%, and real yields near zero, the attractiveness of stocks relative to bonds is extremely prominent.

Notably, he acknowledged that there is some "moisture" in this year's earnings: valuation gains recognized by hyperscalers from private equity investments account for about 9.5% of the total S&P 500 earnings growth. However, he stressed that cloud computing revenue is growing at over 25% year-over-year, a significant jump from the previous 15% growth rate, and the operational earnings improvement has substantial support.

Why This AI Bull Market Bubble Won't Burst as Quickly as the 1999 One

Another core judgment of Eric is that the current AI-driven bull market differs fundamentally in pace and nature from the 1999 dot-com bubble, and it may evolve in a more moderate but more sustained manner.

He noted that current valuations of semiconductor supply chain companies (including many related firms in South Korea) are generally low, with memory chip stocks trading at only 6 to 8 times earnings. In contrast, in 1999, Cisco had a P/E of 50 times, and JDS Uniphase reached 100 times. This suggests that even though the AI theme is highly concentrated, it is still closer to an "earnings bubble" rather than a "valuation bubble."

He also pointed out that, unlike 1999, the current IPO market is dominated by private equity and venture capital firms, which tend to hold their targets until they reach trillion-dollar levels before exiting, resulting in a lack of the "first-day pop" retail euphoria seen back then. He believes this bull market may continue for a longer time in a "slow-burn" manner rather than ending with sharp rises and falls.

Ten Bullish Arguments: A Trinity of Economy, Inflation, and Sentiment

Eric summarized ten reasons supporting the S&P 500's upward trend: strong economic growth, a solid job market, accelerating earnings, excessively low real interest rates, cautious investor sentiment, nominal inflation benefiting real assets, and the banking system returning to an expansion cycle, among others.

He particularly emphasized that the current fund manager community is generally skeptical—there are widespread concerns about whether AI capital expenditures constitute malinvestment, whether hyperscalers can recover their data center investments, and widespread worries about the consumer side. This contrasts sharply with the market atmosphere of 1999, where everyone was "involved and no one talked about the bubble."

He defined this phenomenon as a "contrarian indicator": when institutional investors are generally cautious, the market often has not yet reached the peak of a bubble. Viewed through his "Project Zimbabwe" framework, in an inflationary environment, nominal asset prices rising is a historical norm, not an exception. He stated that in any country—whether Turkey, Argentina, Venezuela, Brazil, or Japan—stock indices denominated in local currency have trended upward over the long term. This is not due to bullish sentiment but is an inevitable result of nominal inflation.

Bear Case: The "Second Derivative" of CapEx is the Biggest Tail Risk

Eric did not avoid bearish arguments. He believes the biggest downside risk lies in a "second derivative" turning negative for data center capital expenditures, meaning the growth rate shifts from accelerating to slowing or contracting.

The specific scenario is: if hyperscalers determine around 2027 that data center capacity is already sufficient and choose to pause new large-scale construction, the high valuations in the data center hardware supply chain would face a systemic compression. He noted that some niche hardware sectors, such as connectors, have already been assigned extremely high valuation multiples, and these are highly cyclical capital goods. Once end-demand growth slows, valuation contractions will be severe.

He estimates that global data center capital expenditures are currently around $600 billion to $800 billion and could exceed $1 trillion in the next one to two years. However, he also admitted that if Oracle CEO Larry Ellison and Mark Zuckerberg say in 2027 that "our data centers are enough," the semiconductor trade would face heavy pressure, and the S&P 500 could face a 40% downside risk.

Structural Opportunities in Exchanges, Energy, and Banks

In terms of specific sector allocation, he is particularly bullish on CME Group and Intercontinental Exchange (ICE), noting that both are currently trading at about 18 times and 15 times earnings respectively, historically low levels, with extremely high earnings sustainability and cash flow quality. He is relatively optimistic about the competitive threat from perpetual futures, believing that CME's institutional client base (about 90%) and its ability to physically deliver underlying assets constitute competitive barriers. Additionally, if CME were willing, it could easily launch similar products.

He also noted that sectors such as oil and gas, chemicals, refining, and shipping are showing very high earnings revision momentum, but market valuations have not reflected this. He views the disruption of the Strait of Hormuz as a potential multi-year structural issue, similar to the persistence of the Russia-Ukraine conflict, and believes that if this situation persists, U.S. refiners, global shipping, and chemical companies will continue to benefit.

He maintains a bullish stance on European banks and Japanese banks. He believes the global banking industry is transitioning from a "post-financial crisis tightening" model to a new cycle of "regulatory easing and credit expansion." Mitsubishi UFJ's loan portfolio grew 10% last year, the first time in many years. European bank earnings are still growing at about 5%, and most European banks trade at around 8-9 times earnings, making them attractive.

Regarding software stocks, he is cautious, believing that software companies face long-term uncertainty from business model transformation—the path from per-seat licensing to API and usage-based pricing is not yet clear—which could make them "semi-dead money," analogous to the current market situation of office real estate.

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