In a recent note, Goldman Sachs analysts have reiterated their year-end target of 5,200 points for the S&P 500 (SP500), but they also believe that continued gains in megacap technology stocks could propel the benchmark index to reach 6,000 points.

This bullish scenario comes after the S&P 500 surpassed the historic milestone for the first time ever, driven by expectations of three interest rate cuts this year by the Federal Reserve. The index displayed further momentum and closed at 5,234.18 points last Friday, showcasing the strength of the current bull market.

Despite the index exceeding the year-end estimates of many brokerages, Goldman Sachs maintains its 5,200 target due to the belief that economic growth forecasts and expected federal funds rate reductions have already been factored into the market. However, the future path of the S&P 500 forward multiple remains uncertain.

Goldman Sachs analysts, led by David Kostin, highlighted in their note that the current growth stock rally differs from previous experiences such as the 2021 and Tech Bubble due to investors' focus on profitability. They also emphasized that while there is optimism about artificial intelligence (AI), valuations and long-term growth expectations for the largest technology, media, and telecommunications (TMT) stocks are not in "bubble" territory.

Examining various valuation scenarios, the most bullish projection from Goldman Sachs sees the S&P 500 advancing by approximately 15% to reach 6,000 points by year-end. Such a surge would be primarily driven by the continued gains in megacap technology stocks, which have been one of the key drivers of the current bull market on Wall Street.

The note further highlighted that during the Tech Bubble, the cap-weight S&P 500 index traded at a valuation premium of over 100% compared to the equal-weight index, while in 2021, it traded at a 30% premium. Taking into account a 16x next twelve months (NTM) price-to-earnings (P/E) multiple for the equal-weight index and a 45% P/E premium for the market-cap index, the aggregate S&P 500 would trade at a forward P/E of 23x, around 10% above the current level.

Goldman Sachs also outlined three other potential scenarios for the index. One scenario suggests a "catch-up" situation where the S&P 500 would end the year at 5,800 points, marking an 11% increase from current levels. Another scenario foresees a "catch-down" situation with the index declining to 4,500 points, representing a 14% decrease. The final scenario imagines a year-end level of 4,500 points amid concerns about the economic outlook and increased risk of a recession.

In summary, Goldman Sachs analysts are optimistic about the potential for the S&P 500 to reach new heights, with a bullish scenario projecting the index to reach 6,000 points by year-end, largely driven by continued gains in megacap tech stocks. However, the path of the index's forward multiple remains uncertain, and alternative scenarios present a range of possibilities for the future performance of the S&P 500.