S&P 500 Earnings Growth Rate Hits a 30-Year High, Boosting Bullish Sentiment in US Stocks, AI Shifts from Cost Center to Profit Center

BlockBeats News, August 16th. The S&P 500 Index saw a 31% year-on-year growth in second-quarter earnings, marking the strongest growth since 1992 excluding recession recovery periods, far exceeding the previous expectation of 23%. The core driver behind this was a substantial uplift in profit margins due to AI, with the net profit margin jumping from a long-standing 14% to nearly 16%.

Mark Hackett, Chief Market Strategist at Nationwide Funds Group, pointed out that in the past five years, AI has been a cost center for companies, but this year has seen a turning point where AI is now truly acting as a profit center. The earnings growth significantly outpaced the index's gains, leading the S&P 500's price-earnings ratio to drop from around 26 times at the beginning of the year to below 22 times, completing a round of "valuation reset." Scott Rubner, Head of Strategy at Citadel Securities, stated, "Currently, it is earnings driving the show, not valuation expansion." Grace Peters, Co-Head of Global Investment Strategy at J.P. Morgan Private Bank, also mentioned that seeing double-digit earnings upgrades outside of a recovery period is almost unprecedented.

Earnings expansion is no longer just a large-cap story. About three-quarters of U.S. companies that have reported earnings have exceeded expectations in both earnings per share and revenue, with the beat rate for small and mid-cap stocks nearing a post-pandemic high. European companies saw their second-quarter net profit margin soar to a record 12%, with the MSCI Europe Index's earnings growing by 18%, the best since 2022; the Asia-Pacific region has seen earnings estimates raised by nearly 10% since June, the largest since 2009 for the same period. Strategists have raised the full-year earnings growth forecast for the S&P 500 from 15% at the beginning of the year to 27%, with the year-end target price averaging 7,894 points. NVIDIA's earnings report will be the final significant puzzle piece this month, further testing the strength of this earnings bull market.