The earnings boom is only getting stronger. Here's what that means
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A strong earnings backdrop that was already underpinning the bull case for many investors this year has gotten positively explosive, thanks to the AI boom. The S & P 500 is now on track to deliver second-quarter earnings growth of 47% on a yearly basis, up from around 20% prior to the start of the season, according to FactSet data. The blistering pace is unusual in that it's usually reserved for recoveries from recessions or other disastrous circumstances. In 2021, for example, the broader index posted an earnings growth rate of more than 90% — but that was when the market was coming out of the throes of the Covid pandemic. Similarly, in the first quarter of 2010, it grew earnings at a pace of 55%, but that was from the depressed levels of the financial crisis. Instead, the current earnings boom is being driven by a historic period of investment into artificial intelligence, with just two companies now driving outsized earnings growth: Alphabet and Amazon . But even without those two stocks, the S & P 500 is still on pace to deliver earnings growth of more than 28%, which would mark a seventh straight quarter of double-digit earnings growth, FactSet data shows. "It is, in my opinion — and I don't think this is even being hyperbolic — probably the best earnings quarter that I've ever seen in my 30 years doing this," Mark Hackett, chief market strategist at Nationwide, said. The powerful earnings backdrop only adds to confidence in the stock market, which on Wednesday was at all-time highs thanks to a positive confluence of events. Oil prices slid , as geopolitical headwinds receded. Tech rallied, following a crisis at Situational Awareness that many investors expect was a clearing event for the market. The latest earnings from Palantir and others this week are only adding to the recent momentum. On Tuesday, the S & P 500 crossed 7,700 for the first time ever. The iShares Semiconductor ETF (SOXX) climbed more than 15% over the last four trading sessions, though it was down Wednesday. "All these people that were on the sidelines last week now have to jump in with both feet in order to get back in," said Hackett. "That is the type of panic that people have when they're on the sidelines and markets start running." Not everything may be as good as it seems, however. Take Amazon and Alphabet, for example. Earnings growth was driven in part by large, one-time equity gains in their ownership of companies such as Anthropic and SpaceX , which may not be replicated in the coming quarters. In fact, Sam Stovall, chief investment strategist of CFRA, pointed out that while there have been upward revisions to 2026 earnings, there have been downward revisions for 2027 earnings, down to roughly 13.5% from 18%, that could make investors wary. "I think the question that some investors are going to be asking themselves is: Was Q2 the peak in earnings?" Stovall said. "And is that something we have to factor into our target price projections?" For now, however, the earnings backdrop has added to conviction in the near-term outlook, he said. The recent gains in tech could further buoy the indexes. "In the short term, the trend is your friend," Stovall said.