Wall Street continues to anticipate that the AI investment boom will persist over the next year. This forms the core basis of HSBC Holdings PLC's bullish projection for the S&P 500 (^GSPC), which the bank expects to hit 7500 by December 2026. The optimistic outlook reinforces confidence in the AI-driven market rally, which, despite occasional "bubble concerns," has remained resilient.

HSBC analysts Nicole Inoue, Alastair Pinder, and Matt Borsetta noted in their report, "As the AI arms race intensifies, AI-related capital expenditure (capex) will likely dominate in 2026."

The bank's target implies another year of double-digit gains for the S&P 500, reminiscent of the late-1990s tech boom. The forecast does not dwell on whether an "AI bubble" exists—HSBC colleagues have previously argued against such concerns—but instead suggests the uptrend could persist, stating, "We believe there is still room for further upside and recommend broadening exposure to AI-related trades." The projected 12% rise from current levels is largely attributed to surging AI investments.

However, optimism around cutting-edge technology is not the only trend expected to extend into 2026. HSBC also predicts a "constrained consumer spending" environment and a continuation of "K-shaped economy" dynamics.

Analysts wrote, "While AI investments should support the economy, consumer confidence appears increasingly fragile. Sticky inflation, an uncertain labor market, and policy shifts favoring high-end consumption remain key challenges."

HSBC anticipates 2026 will be marked by what analysts call a "two-speed economy"—widening disparities between key economic indicators. Higher-income individuals and those with strong credit scores are spending more and expressing greater economic confidence, while lower-income groups remain cautious.

Recent earnings reports further validate this divergence. Travel and hospitality firms like Delta Air Lines (DAL) emphasized premium services, whereas retailers highlighted cost-conscious consumers shifting to value-oriented products—a nationwide "downgrade" in spending. Meanwhile, discount-focused retailers such as Walmart (WMT) and TJX Companies (TJ Maxx, Marshalls, HomeGoods) have thrived.

HSBC analysts added, "We expect this 'K-shaped consumption' trend to deepen in 2026, driven by policy biases toward high-end consumers and the Fed maintaining its current stance."

The bank's outlook aligns with other bullish forecasts emphasizing AI's upside potential. Earlier this week, Deutsche Bank set a year-end 2026 S&P 500 target of 8000, citing AI-driven optimism.

Deutsche strategists noted in their global outlook, "Rapid AI investment and adoption will continue to dominate market sentiment"—the most optimistic projection among major international banks.

While AI-related trades remain concentrated among a few giants (notably Big Tech hyperscalers), HSBC expects broader participation in 2026, with downstream cloud service providers and AI-enabling firms gaining prominence.

The report stated, "As the AI arms race evolves, we anticipate AI exposure expanding beyond hyperscalers to include AI application and infrastructure players."