US corporate earnings are expected to rise about 31% year on year in the third quarter, with technology and AI heavyweights Alphabet, Amazon.com and Meta Platforms accounting for two-thirds of the increase, according to a report in Reuters. The forecasts come as investors question how long AI-led earnings growth can continue and whether share prices can sustain their gains.
Technology stocks helped the S&P 500 reach a record high this week. The earnings season is expected to begin unofficially next week with results from JPMorgan Chase and Goldman Sachs.
AI And Energy Lead Growth
Technology and AI could account for 70% to 80% of earnings growth, said Sameer Samana, head of global equities and real assets at Wells Fargo Investment Institute. Energy earnings are forecast to rise about 115% after US oil prices surged roughly 30% in the third quarter amid the US-Israeli war with Iran. Consumer staples and real estate have some of the weakest growth estimates, Samana said, as reported by Reuters.
US semiconductor earnings are expected to increase about 136%, compared with about 158% in the second quarter, said Tajinder Dhillon, LSEG's head of earnings and equity research.
Micron Technology last month forecast quarterly revenue above estimates and said customer commitments under long-term supply agreements had reached $32 billion. Google entered a major power deal with Constellation Energy this week.
Nick Raich, chief executive of the Earnings Scout, said recent results suggested companies continued to benefit from AI demand, although earnings estimate revision momentum was cooling.
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Investors Assess Peak Growth And Rates
Strategists remain uncertain whether third-quarter earnings growth will exceed the second quarter's pace, despite companies typically beating analysts' estimates.
S&P 500 earnings rose nearly 54% in the second quarter, the fastest growth since 2021, LSEG data showed. Excluding mark-to-market gains on AI-related investments at Alphabet and Amazon.com, growth was about 35%, also the highest since 2021.
Anthony Saglimbene, chief market strategist at Ameriprise Financial, said earnings growth could be approaching its peak for the current cycle. "A lot of this AI trade is built on continued capex spending, and every quarter we go, and they continue to spend, the hurdle rates get higher and the scrutiny gets larger," as quoted by Reuters.
Investors will also assess the impact of higher interest rates on profits. US bond yields have risen amid concerns about inflation, higher oil prices and debt problems in France and elsewhere. Heavy borrowers, including utilities, face risks from higher rates, Samana said.
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