The profit of 86% of the constituent stocks exceeded expectations! The AI boom sparks S&P 500 profits, and the annual growth rate is expected to rise to 32%

The Zhitong Finance App notes that the S&P 500 index's full-year profit forecast is rising, supported by a boom in artificial intelligence and stronger than expected profit performance in the first half of the year.

According to BI data, almost all companies in the S&P 500 have published financial reports, and 86% of the companies have surpassed analysts' expectations for profit, the highest percentage since 2021.

According to Wall Street data, due to the increase in profit expectations of non-essential consumer goods and telecommunications companies, the benchmark index's predicted profit growth rate reached 32% this year, up from 24% before the second-quarter earnings season.

BI analyst Nathaniel Verhofer said, “Large-scale AI construction is a clear catalyst for the strong profit growth we are seeing in 2026.” He added that the increase in the second quarter was even higher than the growth rate in the first quarter, “and the first quarter itself has already set many records.”

2026 S&P 500 earnings growth forecast

The results for the second quarter were particularly impressive, as analysts had previously questioned whether companies would still be able to meet the higher expectations of the market after a strong start.

Results that significantly exceeded expectations were mainly focused on AI-related companies such as Amazon and Alphabet.

The telecom services industry has experienced the biggest increase. Currently, profits are expected to increase by 51% this year, higher than the 26% forecast at the beginning of the second quarter.

Within the industry, EchoStar Corp., Alphabet, and Warner Bros. Discovery) are some of the companies that have increased the most in the past three months. Alphabet, a major stock in the telecom services index, benefited from strong ad revenue growth and AI-driven monetization capabilities; while EchoStar surpassed expectations the most in this sector, mainly driven by one-off events.

BI analyst Rahul Jain said that even if “unusually huge” profit contributions from one-off projects were removed from the broader S&P 500 index, this was still one of the strongest earnings seasons in history.

After the announcement of the second-quarter results, the non-essential consumer goods sector ranked third in terms of increase in profit expectations. With the exception of the automotive industry, all segments surpassed expectations, with Amazon performing three times higher than expected. The industry's profit is currently expected to increase by 32% this year, higher than the previous forecast of about 12%.

BI analyst Wendy Song said, “Retailers including Target, Walmart, TJX, Ross Stores, and Estée Lauder all exceeded expectations and raised performance guidelines due to healthy consumer spending.”

Tech

The tech sector continues to benefit from increased capital expenditure to advance AI capabilities, although some headwinds are emerging.

“AI companies are still the main drivers of S&P 500 earnings,” Wehrhofer said. He added that although this group may have peaked in the quarter and the slowdown in profit margin expansion raised the monetization threshold, the strength of fundamentals has not disappeared.

Rising costs are increasingly becoming a drag. Apple's sales prospects are disappointing as rising memory prices and supply restrictions increase product waiting times; while Nvidia warns that profit margins will narrow in the face of a surge in memory costs. Nvidia, Apple, and Microsoft are the most important constituents in the index.

energy

Energy company performance is rising as markets push for reliable electricity and disruptions caused by the Middle East conflict fall short of expectations.

ExxonMobil and Chevron's estimated results have been raised. Chevron reported record profits, while the rise in crude oil prices brought about by the Iran war increased ExxonMobil's profit by around $37 billion.

Baker Hughes was most pleasantly surprised by energy equipment and service companies because the effects of the Middle East war were milder than expected and orders were higher. The company raised its full-year outlook as industrial and energy technology orders doubled year over year to a record $7.1 billion.

finance

As the catalyst is expected to continue until the third quarter, financial companies' earnings estimates for the second quarter were slightly raised.

Keefe Bruyette & Woods analyst Shreyank Gandhi said, “Strong capital markets, increasing loan growth, and clean credit conditions all supported the results for the second quarter of 2026.”

According to data compiled by BI, revenue from fixed income, stocks, forex, and commodities trading, plus transaction fees, is expected to grow in the third quarter. BI analyst Neil Cyps said that credit transactions are supported by active trading in bonds and securitization products, and consulting fees are expected to grow from larger transactions.

Cyps said that stock trading revenue may have slowed from the “impressive” second quarter, but this mild correction reflects a normal seasonal phenomenon rather than a slowdown in overall business activity.

BI analyst Eric Bedell said that the profit growth of medium-sized banks next year is expected to be faster than that of large regional banks, adding that this group is less sensitive to deposit cost pressure.