November 13 (Reuters) – Goldman Sachs expects the benchmark S&P 500 index to rise to 8,700 points within the next 12 months, as valuations become more attractive after recent significant sell-offs, which should help the stock market achieve positive returns even as profit growth slows down.

Calculated based on Goldman Sachs' target price, this means that there is still more than a 14% upside potential for the index compared to its previous closing price of 7,592.40 points.

Goldman Sachs' judgment comes shortly after the large-scale selling off of major tech companies following the Democratic Party's victory in last week's mid-term elections in the United States. The market is concerned that the pace of data center construction may slow down.

It is estimated that the global market's profit growth rate will be halved at least by 2027; in the US market alone, the profit growth rate may drop from 36% to 11%, possibly due to a slowdown in capital expenditure growth among hyperscale cloud service providers.

In a report on Thursday, Goldman Sachs stated that slower spending will drag down the profitability of the AI infrastructure sector. However, due to more attractive valuations, continued positive economic and profit growth, as well as declining bond yields and inflation, the stock market is still expected to rise next year.

The current valuation remains attractive, with the latest trading price of the S&P 500 being about 18.5 times the expected earnings for the next 12 months, which is significantly lower than the recent high of over 23 times.

In terms of stock allocation, Goldman Sachs maintains an 'overweight' rating for the United States and Japan, a 'neutral' rating for Asia and emerging markets, and a 'underweight' rating for Europe.

Goldman Sachs stated: "From now on, we expect the stock market to generate positive returns, although volatility will be higher than in recent years."

Following reports that Jensen Huang, NVIDIA's longtime CEO, resigned due to an alleged extramarital affair, the troubles of this chip giant have also intensified market concerns regarding AI transactions.

According to data compiled by LSEG, NVIDIA's stock price is approximately 11.7 times its expected earnings for the next 12 months, representing the lowest level since February 2012.

(Reported by Kanchana Chakravarty and Shashwat Chauhan from Bangalore; Edited by Shinjini Ganguli)