S&P 500 earnings jump 31% in Q2 as AI shifts from cost center to profit driver

News Editor

2026-08-16 09:50:28

S&P 500 companies posted 31% year-over-year earnings growth in the second quarter, beating an earlier 23% expectation and marking the strongest non-recession-rebound pace in data going back to 1992, according to BlockBeats. The report said AI has become a key force behind the jump, lifting net profit margins from a long-stuck 14% level to nearly 16%. Mark Hackett, chief market strategist at Nationwide Funds Group, said the turning point has arrived this year after AI spent the past five years as a cost center for companies. The earnings surge has also outpaced the index’s price gain, pushing the S&P 500’s price-to-earnings ratio down from about 26x at the start of the year to below 22x in what the report described as a valuation reset. Citadel Securities strategist Scott Rubner said earnings, not multiple expansion, are doing the heavy lifting. JPMorgan Private Bank’s Grace Peters said double-digit earnings upgrades outside a recovery period are almost unprecedented. The strength has spread beyond large caps, while Europe and Asia-Pacific have also seen profit expectations improve sharply.

BlockBeats reported on Aug. 16 that S&P 500 companies delivered 31% year-over-year earnings growth in the second quarter, well above an earlier 23% expectation. It was the strongest pace, excluding recession-recovery periods, in data traced back to 1992.

The report said AI has been the main driver behind the margin expansion. Net profit margins rose to nearly 16% after spending a long period struggling to break above 14%. Mark Hackett, chief market strategist at Nationwide Funds Group, said AI had been a cost center for companies over the past five years, but this year marks a turning point, with AI now starting to function as a real profit center.

Earnings growth has run well ahead of the index’s advance, leading to what the report called a valuation reset for the S&P 500. Its price-to-earnings ratio has fallen from about 26x at the start of the year to below 22x. Scott Rubner, head of strategy at Citadel Securities, said, 「Right now, earnings are doing the heavy lifting, not valuation expansion.」

Grace Peters, co-head of global investment strategy at JPMorgan Private Bank, also said double-digit earnings upgrades outside recovery periods are almost unprecedented. The report added that profit growth is no longer just a large-cap story.

About three-quarters of U.S. listed companies that have reported results beat expectations on both earnings per share and revenue. Among small- and mid-cap stocks, the beat rate is close to a post-pandemic high.

Outside the U.S., earnings trends have also strengthened. European companies’ net profit margin climbed to a record 12% in the second quarter, while earnings for the MSCI Europe Index rose 18% year over year, the best reading since 2022. In Asia-Pacific, earnings forecasts have been revised up by nearly 10% since June, the biggest increase for the same period since 2009.

Strategists have now raised their full-year S&P 500 earnings growth forecast to 27%, up from 15% at the start of the year. Their average year-end target for the index has also moved up to 7,894. Nvidia’s earnings report is set to be the final major piece of the puzzle this month, offering another test of the strength behind the current earnings-led bull run.

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