Consensus estimates point to 27% year-over-year earnings growth for the S&P 500 in the third quarter, but Micron and Nvidia alone are projected to supply more than a third of that gain. The concentration is raising questions about how broad the earnings season really is.
The S&P 500 is heading into third-quarter earnings season with a headline growth figure most companies would envy. Micron and Nvidia alone are projected to supply more than one-third of that growth.
A big number with a narrow base
The 27% figure marks a slowdown from last quarter. Goldman Sachs's report puts second-quarter EPS growth at 33% once distortions are adjusted out.
Spending on AI infrastructure is anticipated to drive more than half of the index's overall earnings increase. Information technology and energy together are expected to contribute nearly 80% of total EPS growth for the quarter. The top 10 contributors are projected to generate roughly 68% of the index's earnings growth.
Micron and Nvidia take center stage
Micron Technology has already shown what a memory boom looks like on an income statement. The company reported EPS growth of 1,003% year-over-year for its fiscal third quarter ending in August, well ahead of what analysts had expected.
Nvidia is expected to post EPS growth of around 90% year-over-year in its upcoming report. FactSet estimates suggest a blended EPS growth range of 28.5% to 29.5% for the quarter, and notes that upward revisions during this stretch of the calendar are uncommon.
The breadth question
This earnings season marks the eighth consecutive quarter of double-digit earnings growth for the S&P 500. Fourteen of 16 Zacks sectors are expected to report positive EPS growth this quarter.
Still, the median S&P 500 constituent is not growing anywhere near 27%, with the index average pulled upward by a few outsized results. For anyone holding an index fund tracking the index, a meaningful slice of that momentum now depends on AI-related capital spending continuing at its current pace.
Nvidia's upcoming report will be the marquee event. Guidance will matter as much as backward-looking results, since investors want to know whether the slowdown from 33% to 27% is an early hint of a cooling trend.
Source: Crypto Briefing
Trading involves risk.
Risk Disclaimer
