Earnings Momentum Builds as AI Investment Takes Center Stage

Posted on July 27, 2026

The 2026 Q2 earnings season is off to a remarkably strong start. With roughly 16% of S&P 500 companies reporting, about 91% have exceeded earnings expectations and more than 81% have beaten revenue estimates—both exceptional results by historical standards.

Reported earnings are up approximately 41% year over year, while revenue has increased by about 13%. Even after excluding Micron’s outsized contribution, earnings growth is expected to grow above 20%. Additionally, if you exclude the main players of the technology sector, earnings are projected to grow by about 16%. This is encouraging and indicates that earnings strength is broader than a single company, sector, or theme.

Financials have also delivered strong results, highlighting that despite headlines, consumer and business sentiment remain strong with higher spending, investment, and healthy balance sheets and cash flows. Additionally, energy, information technology, and materials are emerging as the strongest growth sectors in the current climate. Earnings momentum is also expanding beyond the largest technology companies. The “Magnificent Seven” remain major contributors, but many companies outside that group are producing solid growth as well. Although elevated valuations have been a concern for investors, the S&P 500’s 12-month Forward P/E comes in at 20.3x, which is in line with its five-year average of 19.9x and ten-year average of 19.0x.

Another theme to keep eyes on during this, and future, earnings seasons is hyperscaler capex spending and monetization results, which are keys to the AI infrastructure trade. Although sentiments surrounding capex spend remain highly debated, some large hyperscalers argue that enterprise AI momentum may help alleviate some fears surrounding capex ROI. For example, Alphabet, Inc. (Google) reported that despite strong backlog growth, on-demand consumption is still outpacing commitments by over 50%. Conversely, Google also reported negative free cash flow for the first time in its history as a public company ($5.9bn deficit) and has updated their full-year 2026 guidance for capex by an additional $15-$25bn to meet growing demand. Of course, this will be monitored and revealed over time as the global economy continues to move towards this new industrial and technological era.

Overall, Q2 earnings have been broadly positive: beat rates, in some cases, are surprisingly high, earnings and revenue growth are accelerating, and market leadership is broadening. The next test will be whether this momentum continues as more industrial, consumer, healthcare, and technology companies release results in the weeks ahead.

Ryan Brooker
Senior Investment Associate