BofA upgrades Communication Services and raises S&P 500 targets, betting that cloud revenue growth at tech giants will finally justify massive AI-related capital expenditures by 2027.
BofA raised its 2026 year-end S&P 500 target to 7,400 and set a 12-month target of 7,800, implying modest returns.
BofA expects Alphabet's cloud revenue to outpace capex growth in 2027 and upgraded Communication Services to marketweight.
Meta is a major component of Communication Services and BofA expects its cloud revenue to outpace capex growth.
BofA expects Microsoft's cloud revenue to outpace capex growth in 2027.
BofA expects Amazon's cloud revenue to outpace capex growth in 2027.
BofA expects Oracle's cloud revenue to outpace capex growth in 2027.
SpaceX is mentioned as a large private company approaching public listing, which could draw funds away from existing stocks.
Bank of America raised its 2026 S&P 500 year-end target to 7,400 and set a 12-month goal of 7,800, citing strengthening earnings. The firm upgraded the Communication Services sector to marketweight, noting that cloud revenue at major hyperscalers is finally beginning to outpace capital expenditure growth.
The bank upgraded the sector because the gap between AI-related capital expenditures and cloud revenue growth is closing, favoring companies like Alphabet and Meta.