The S&P 500 is on pace for four straight quarters of EPS growth above 20%, a streak that has happened only 10 times since 1936, Bank of America data show. AI-related companies are driving most of the gain, and strategists warn the pace can't hold once growth slows in 2027.
With just under 90% of S&P 500 companies having reported second-quarter results, roughly 80% posted year-on-year EPS growth, according to Bank of America research. That puts the quarter in the 94th percentile for the metric.
Combined with consensus forecasts for the third and fourth quarters, that puts the index on track for four consecutive quarters of EPS growth above 20%. BofA says that run has occurred only 10 times since 1936.
AI-related stocks post more than double the growth
10 of 11 S&P 500 sectors are on pace for positive year-on-year earnings growth this quarter, BofA strategists led by Savita Subramanian noted. Yet AI-related companies posted median EPS growth of 28%. Non-AI-related companies saw median growth of just 12%.
According to Bank of America: "even so, AI remained the index's primary growth engine". However, the strategists said that strength isn't likely to last, with EPS growth expected to decelerate in 2027 even as consensus stays strong for the rest of this year.
Apollo Global Management's Torsten Sløk made a related point over the weekend: tech-sector profit margins have kept climbing while margins elsewhere in the market have shown little to no expansion, underscoring how dependent the major indexes have become on the AI boom for their returns.
Wall Street raises targets, but flags a pricing risk
Even so, optimism has not faded. On Monday, JPMorgan Chase's equity strategy team, led by Dubravko Lakos-Bujas, raised its year-end S&P 500 target to 8,000 from 7,800. That level would mark roughly 3% appreciation from where the index closed on Friday.
Still, the market may already be pricing in much of the good news. Companies that beat both EPS and sales expectations saw their shares outperform by just 0.8 percentage points the next trading day — just over half the historical average, the BofA strategists said.
Hyperscaler spending underpins the trade
AI spending, mainly from hyperscalers, is now expected to rise to $900 billion by year-end as those companies raise their spending projections. That compares with total S&P 500 capital expenditure expected at $1.5 trillion.
That leaves the AI industry responsible for roughly 59% of capex across the index. Hyperscalers are expected to keep spending aggressively, since any pullback could signal weaker demand — even as investors increasingly expect that spending to show up in earnings.
Source: Yahoo Finance
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