Royal Bank of Canada's capital markets division increased its year-end projection for the S&P 500 index on Friday, lifting it from 7750 to 7900. The revision is based on robust earnings growth and sustained strength in artificial intelligence-related sectors.

The new target implies a potential gain of 7.7% from the S&P 500's closing level of 7335.66 on Thursday.

In recent weeks, U.S. equities have continued their ascent, repeatedly setting new records. Investor enthusiasm, driven by excitement around AI investments and expectations of solid profit growth, has underpinned the market's momentum.

Last month, the S&P 500 recorded its largest monthly advance since November 2020.

RBC's optimistic outlook aligns with similar moves by other major Wall Street institutions such as JPMorgan and Barclays, which also raised their S&P 500 targets last month, citing reduced geopolitical risks and improved earnings momentum.

The bank indicated that upward revisions to earnings forecasts, led by technology and AI-focused companies, combined with strong demand for AI infrastructure, are supporting market valuations. It added that U.S. corporations have demonstrated notable resilience in the face of rising costs and geopolitical uncertainties, with market leadership continuing to reside in large-cap growth stocks.

Despite a challenging macroeconomic backdrop—including persistent inflation, uncertainty around the timing of U.S. interest rate cuts, and ongoing geopolitical tensions—RBC strategists noted that the equity rally has persisted.

On the sector front, although U.S. healthcare stocks still appear attractively valued, RBC downgraded its rating on the group from "overweight" to "market weight," citing downward revisions to earnings estimates, fund outflows, and policy-related uncertainty.