Corporate earnings soared in Q2, with AI as the 'growth engine': Chart of the Day

Corporate earnings soared in Q2, with AI as the 'growth engine': Chart of the Day

Jake Conley · Breaking Business News Reporter

Mon, August 10, 2026 at 8:35 PM GMT+3 4 min read

• ^GSPC -0.07%
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As the second quarter earnings season begins to wind down, Wall Street and Main Street alike are tallying up the scores, and the numbers have been unquestionably strong.

With just under 90% of companies in the S&P 500 (^GSPC) having released second quarter earnings, roughly 80% have reported year-on-year EPS growth, putting the quarter in the 94th percentile for the metric, per Bank of America research.

Those results, plus Wall Street consensus forecasts for the third and fourth quarters, put the S&P 500 on track for four consecutive quarters of EPS growth exceeding 20%, per BofA, a phenomenon that has only happened 10 times since 1936.

Part of that story, according to Bank of America strategists led by Savita Subramanian, is the AI boom that has largely been driving the US equity market.

The second quarter has seen broad earnings growth, with 10 out of 11 sectors on pace for positive year-on-year movement, BofA noted. Yet, "even so, AI remained the index's primary growth engine," the strategists wrote. While the median AI-related stock notched EPS growth of 28%, the median non-AI-related stock saw growth of just 12%.

But that strength isn't likely to last forever, the strategists said. While consensus expectations remain strong for the third and fourth quarters, EPS growth is expected to decelerate in 2027, which the strategists said may muddle investors' perceptions.

The question for investors now is what happens when that torrential growth slows down.

"Markets tend to become less supportive as earnings growth decelerates, with years of above-trend but slowing EPS growth typically producing weaker equity returns," the strategists wrote.

Apollo Global Management's Torsten Sløk made the same point over the weekend, with data pointing out that while profit margins have been steadily surging in the tech sector, everywhere else in the market has seen little to no profit margin expansion — another sign of how dependent the major indexes have become on the AI boom for their returns. (Disclosure: Yahoo is a portfolio company of funds managed by affiliates of Apollo Global Management.)

"The bottom line is that the AI capex boom is so far only showing up in the sellers' margins, not the buyers'," Sløk wrote. "This is important because the longer it takes the S&P 493 to generate ROI, the bigger the downside risks to an economy and a market this concentrated in the AI trade."

That doesn't mean there isn't still a good amount of optimism on Wall Street,

On Monday, JPMorgan Chase's equity strategy team, led by Dubravko Lakos-Bujas, raised their year-end S&P 500 target to 8,000 from 7,800, which, if reached, would mark a roughly 3% appreciation from where the index closed on Friday.

In their note, the strategists wrote, "The earnings picture remains strong and broad-based across multiple sectors."

"We argued that the key theme would remain centered on hyperscaler capex guidance … [and] we have seen signs of this playing out during 2Q," the strategists wrote.

AI spending, primarily from the hyperscalers, is now expected to rise to $900 billion by year-end, as those companies have raised their spending projections, the strategists said. That compares to total S&P 500 expected capex of $1.5 trillion, which leaves the AI industry responsible for roughly 59% of capital expenditures throughout the index, another sign of the importance of those companies' success to the health of the overall market.

But the irony is that investors have in many ways priced the market to perfection, especially in the tech sector. Companies throughout the S&P 500 that reported beats on EPS and sales expectations saw their shares outperform by 0.8 percentage points the next day, just over half of the historical average, suggesting "much of the good news was already priced in," the BofA strategists wrote.

For the hyperscalers in particular, the expectation is that those companies will continue to spend aggressively, as any pullback in capital expenditures could signal lessening demand. Yet investors increasingly expect a return on that investment, which ultimately shows up in earnings.

Jake Conley is a breaking news reporter covering US equities for Yahoo Finance. Follow him on X at @byjakeconley or email him at jake.conley@yahooinc.com.

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