Far exceeding expectations! The just-concluded earnings season, U.S. stocks were "astonishingly strong"

How AI · AI Investment Can Ignite U.S. Stock Profit Growth?

U.S. corporate profits are currently experiencing a rare strong momentum not seen in the past twenty years, surpassing Wall Street expectations.

On May 8th, according to Bloomberg industry research data, the earnings of S&P 500 component stocks in the first quarter increased by as much as 27% year-over-year, more than double the analyst forecast of about 12%, marking the fastest growth since 2004, excluding the recovery period after major economic shocks.

The profits of the "Big Seven" tech companies are expected to jump 57% in the first quarter, further confirming the profitability potential of AI investments.

Geopolitical tensions were initially seen as the biggest hidden risk weighing on U.S. stocks, but a strong earnings season has alleviated market concerns, and economic resilience has dispelled worries about a global slowdown.

Exceeded Expectations, Largest in Over a Decade

The first-quarter earnings season in the U.S. was the best in 20 years. The strong performance of this earnings season caught Wall Street off guard.

According to Bloomberg industry research data, the extent to which S&P 500 stocks exceeded analyst expectations was the largest since 2013, excluding the COVID-19 pandemic period. Charles-Henry Monchau, Chief Investment Officer at Banque Syz, said:

I don’t remember a time when the consensus expectations of the sell side and actual earnings were so far apart.

He initially bet on overseas markets outperforming at the start of the year, but as tensions in Iran escalated and the AI boom evolved, he tactically shifted his positions back to U.S. stocks, noting that Europe "may not necessarily be the winner of this war."

In Minneapolis, US Bank forecasted at the beginning of the year that the S&P 500’s earnings per share (EPS) would reach $305 by 2026.

According to Robert Haworth, Senior Investment Strategist at the bank’s wealth management division, the strong first-quarter performance forced the bank to raise its full-year earnings forecast and its year-end target for the S&P 500. He straightforwardly said:

Our expectations were clearly too low.

Led by the "Big Seven," the entire industry turns positive

Tech giants remain the main engine of this earnings growth.

Based on Bloomberg industry research compilation data, the "Big Seven"—Nvidia, Microsoft, Alphabet, Amazon, Meta, Apple, and Tesla—are expected to see profits jump 57% year-over-year in the first quarter.

Meanwhile, earnings for the other 493 components of the S&P 500 are expected to increase by about 17%.

(This week, the performance of the seven tech giants far outperformed the remaining 493 S&P components.)

Thomas Martin, Senior Portfolio Manager at Globalt Investments, is relatively optimistic about the outlook. He said:

I can’t recall a period with such sustained profit growth. We expect EPS to grow double digits throughout 2026, with AI driving growth for a considerable time.

Wendy Soong, Stock Strategy Analyst at Bloomberg Industry Research, pointed out:

The market is chasing valuations based on future earnings potential of AI-related companies. Despite supply chain disruptions caused by the Iran war, funds are flowing into U.S. assets under the guise of risk diversification.

More notably, the strength has spread across the entire market.

According to a recent report by Deutsche Bank strategists, all 11 sectors of the S&P 500 recorded positive growth for the first time in four years. Even sectors previously dragged down by tariff concerns and consumer sentiment, such as consumer cyclicals, telecommunications, and healthcare, have returned to growth.

Deutsche Bank subsequently raised its 2026 EPS forecast by nearly 7% to $342.

Max Kettner, Chief Multi-Asset Strategist at HSBC, said:

For U.S. stocks, especially large caps, as well as credit markets and risk assets overall, what truly matters is macro activity and earnings fundamentals. Oil prices and geopolitical tensions may be more critical for interest rates and forex markets.

Can Growth Continue? Hidden Risks Remain

Strong profits have not eliminated all risks; multiple hidden dangers still loom over the market.

Ongoing conflicts in Iran continue to disturb energy prices. The S&P 500 has rebounded over 16% from its March lows, but technical indicators show the index has been hovering in overbought territory since mid-April, with short-term correction pressures not to be ignored.

The recent surge in semiconductor stocks also raises caution. According to Goldman Sachs data, hedge funds’ underweight positions in North American stocks relative to global benchmarks have reached a historic high.

John Cunnison, Chief Investment Officer at Baker Boyer Bank, warned that maintaining the current profit growth momentum requires cooperation from consumer spending and confidence. He said:

Consumer confidence remains near historic lows. This prosperity needs to benefit ordinary consumers, not just the wealthy, and translate into broader profit growth outside the tech sector. Otherwise, the U.S. stock market may face pressure to sustain record highs in the coming months.