AI companies driving Q3 US earnings surge

In Short:
– US companies are set for strong third-quarter earnings growth, mainly due to AI-related firms.
– Investors remain cautious about the sustainability of this growth amidst rising interest rates and potential risks.

US companies are expected to report significant earnings growth for the third quarter, driven largely by AI-related firms.Investors express enthusiasm but remain cautious about the sustainability of this growth trend.

Third-quarter projections

Analysts predict a 31% year-over-year rise in S&P 500 earnings, with the tech sector, led by Alphabet, Amazon.com, and Meta Platforms, contributing significantly to this increase.

Tech gains recently propelled the S&P 500 to a record high ahead of the upcoming earnings season, which starts next week with bank results.

The ongoing growth can be attributed mainly to AI and, to a lesser degree, energy and materials sectors influenced by geopolitics.

Energy sector earnings are forecasted to increase by 115% due to rising oil prices amid conflicts involving the U.S. and Iran.

Growth estimates in non-AI sectors like consumer staples and real estate are lagging significantly behind.

Whether the third-quarter growth can exceed the previous quarter’s 54% rise remains uncertain, though most companies typically exceed projections.

S&P 500 earnings rose nearly 54% in the previous quarter, the highest since 2021.

Earnings growth concerns

Concerns about peak earnings growth in the current cycle persist among strategists and investors.

The semiconductor sector is projected to see a 136% earnings increase compared to 158% in the second quarter.

Recent reports indicate ongoing strength in the semiconductor industry, particularly from companies like Micron Technology.

Micron reported revenues above estimates, citing increased long-term supply commitments.

Investors will also monitor how rising interest rates impact corporate profits.

Increased bond yields are attributed to inflation worries, high oil prices, and debt issues in France and beyond.

Heavy borrowers such as utilities face potential risks from these rising costs.