The S&P 500 is on track for its strongest earnings growth since Q3 2021, with analysts projecting 27.3% year-over-year profit expansion for calendar 2026. Through July 24, roughly 27% of index constituents had reported second-quarter results. Of those, 86% beat earnings estimates, above the five-year average of 78%, according to FactSet.
Beat Rate and Surprise Magnitude
Aggregate earnings surprises averaged 39.3% above estimates, well above the five-year average of 7.0%. Alphabet's Q2 GAAP results included a $98 billion gain that skewed the index-level surprise percentage; even excluding that outlier, the beat rate remained elevated.
Ten of eleven sectors reported year-over-year growth. Seven posted double-digit gains, led by Energy, Communication Services, Information Technology, and Materials. Health Care was the sole sector in decline.
AI Spending as the Primary Driver
Goldman Sachs strategists raised their S&P 500 year-end 2026 target to 8,000, citing projected earnings per share of $340 for 2026 and $385 for 2027. Roughly half of the earnings expansion traces to AI infrastructure spending, the bank estimated.
Hyperscalers Microsoft, Amazon, Alphabet, and Meta collectively planned approximately $725 billion in 2026 AI capital expenditure after Q1 earnings, up 77% from 2025's roughly $410 billion. Semiconductors, cloud infrastructure, and energy — data centres are heavy electricity consumers — are the secondary beneficiaries.
Which Companies Matter Most
The index is concentrated. Microsoft, NVIDIA, Apple, Amazon, Meta, and Alphabet account for a disproportionate share of S&P 500 market capitalisation and earnings momentum. NVIDIA's data centre GPU sales feed directly into Microsoft and Amazon cloud buildouts. Samsung and SK Hynix supply high-bandwidth memory for those same servers.
On the crypto-adjacent side, Coinbase and Strategy Inc. (formerly MicroStrategy) represent a different corporate treasury model: direct Bitcoin holdings rather than AI infrastructure. Both reported significant activity in 2025 and 2026, though they sit outside the S&P 500's top-weighted names.
Outlook for Q3 and Q4
Analysts expect Q3 2026 earnings growth of 27.3% and Q4 growth of 24.9%. The key variable is whether hyperscalers can convert capex into recurring revenue before investors demand slower spending. Microsoft's July 30 results, with trimmed capex guidance and accelerating Azure revenue, offered one early signal that the cycle may be entering a monetisation phase.