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Fast reading
- S&P 500 earnings are forecast to rise 24% for Q2, putting the index on track for one of its strongest reporting seasons in years.
- Investors are increasingly focused on company guidance and proof that AI investments are generating meaningful returns.
- The AI trade is broadening, with infrastructure providers such as chipmakers, memory suppliers and networking firms emerging as key beneficiaries.
Optimism is running high as earnings season in the US kicks off, with the latest round shaping up to be one of the strongest in years. All eyes are on the tech giants to see if billions of dollars of artificial intelligence (AI) investment are translating into tangible results.
The S&P 500 index is expected to report earnings growth of 24%1 for the three months ending June. If achieved, it would mark the second straight quarter of earnings growth above 20% for the index.
The estimated net profit margin for the index is 14.2%, which is below the previous quarter’s 14.8% margin, but would still be the second-highest reported on the S&P 500 since 20092.
Steven Chiavarone, Deputy Chief Investment Officer for Global Equities at Federated Hermes, says the estimates put the index on track for the strongest reporting season in five years, amid “the best margin expansion in our lifetimes”. Given that companies have historically exceeded expectations by 5% to 8% on average, Chiavarone says earnings growth approaching 30% is “not out of the question”.
While technology and energy have been major drivers of growth in 2026, 10 of the 11 S&P 500 sectors are expected to report earnings growth for Q2 (Figure 1). “This is the reason that the market has powered through geopolitical headlines,” says Chiavarone.
Figure 1: Broad-based growth expectations for the S&P 500
Louise Dudley, Portfolio Manager for Global Equities at Federated Hermes, says corporate commentary is likely to have a greater influence on share prices than quarterly results, particularly given that US equities continue to trade at elevated valuations relative to long-term averages.
“As recent earnings have shown, guidance matters more than the results themselves,” Dudley says. “We will be closely watching for any signs that the US consumer is becoming less confident.”
While enthusiasm around AI remains strong, Dudley notes that the pace of expected growth is contributing to concerns around inflation. At the same time, geopolitical uncertainty continues to linger, although investors appear less reactive to developments around the Strait of Hormuz than they were earlier this year.
AI investment shifts to infrastructure
Following a recent pause in the AI rally and a broader cooling of market momentum, Dudley believes valuations have become more reasonable, creating a healthier backdrop for earnings season.
She says market leadership continues to broaden, with investors increasingly rotating within the AI theme rather than away from it. The focus has shifted toward infrastructure providers, including semiconductor manufacturers, memory suppliers, networking companies and switching equipment providers, as capital expenditure on AI accelerates.
Focus on AI returns
One of the most closely watched themes this earnings season is whether technology giants can demonstrate returns on the massive investments they have made in AI. The biggest US AI players are on track to deploy more than US$700bn in capital expenditure this year3.
Dudley says earnings growth among hyperscalers has been exceptionally strong and is expected to remain robust. However, “the monetisation of AI investments and whether the returns will justify the enormous capital commitments being made is becoming a bigger focus,” she says.
Encouragingly, Dudley notes that early signs of returns from AI-related capital expenditure are beginning to emerge.
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