Federated Hermes CIO Sees Years Left in AI Boom Before Bubble Risks Rise

Steve Chiavarone, Federated Hermes’ chief investment officer for global equities, believes the AI infrastructure build-out has years to run before bubble risks intensify, citing spending on data centers, semiconductors and power.

Federated Hermes raised its 2026 S&P 500 earnings estimate to $370 from $340 in its September outlook. It projected about 15% earnings growth in both 2027 and 2028, with estimates of $425 and $490, respectively. Those amounts are forecasts, not reported results.

The outlook linked its 2026 earnings forecast to AI infrastructure investment and a resilient U.S. economy. Separately, it said profit margins, excluding one-off effects, had increased about 9% over the prior year and projected a similar pace through at least 2028. The margin projection formed part of the firm’s broader earnings case.

Federated Hermes also used a 20-times earnings fair-value multiple in its market outlook. It projected S&P 500 targets of about 8,500 for 2026, 10,000 for 2027 and 11,000 for 2028. The targets accompany the earnings projections and remain estimates rather than realized index levels.

The firm identified higher depreciation, easing AI supply bottlenecks and slower capital-spending growth as risks as the infrastructure cycle matures. Those factors could make the investment cycle less supportive over time.

Financing offers a less uniform picture. Investors are seeking greater compensation to lend to smaller data-center operators, while major cloud companies have shifted from cash reserves toward borrowing. Chiavarone’s case also rests on selective capital allocation: funding is going to companies viewed as capable of putting it to work, rather than being spread indiscriminately across the sector. The earnings estimates describe the broad index outlook, while these financing signals reflect how AI infrastructure is being funded.

Citadel founder and CEO Ken Griffin offered a sharper counterview Tuesday, saying, “There’s almost certainly bubbles within this moment in time.” Chiavarone’s assessment points to a longer runway for investment but does not specify when bubble risks may become acute.