How Much Longer Can Blue-Chip Companies Keep Up High Performance? 

If you’re an American corporate titan right now, life is basically an all-you-can-eat buffet where everyone else is paying for the napkins. 

In the second quarter, earnings per share for S&P 500 companies skyrocketed 53% from a year earlier and sales jumped almost 16%, according to LSEG data. Plenty of companies across industries, from Best Buy to Caterpillar to General Motors, have beaten earnings expectations and raised their guidance. Still, it’s probably no surprise that big tech is having a disproportionate say: Alphabet, Amazon, Micron Technology and NVIDIA were four of the top five contributors to earnings growth, according to FactSet. 

There are many factors at play, including tariff refunds, resilient consumer spending and elevated energy prices. But the biggest driver is artificial intelligence spending, which has moved far beyond just being a chip story. Hyperscalers are pouring money into data centers, power infrastructure, hardware and more, and capital expenditures for the largest tech companies are expected to top $1 trillion next year. 

Second Act  

Can the strong performances last? The estimated third-quarter year-over-year earnings growth rate for the S&P 500 is 28.5%, and achieving that would mark the index’s third straight quarter of earnings above 25%, per FactSet. For the fourth quarter, analysts are estimating earnings growth of 26.1%. But risks to those estimates are becoming clearer. For one, the market is moving from asking how much companies are spending on AI to when those investments are actually going to pay off. 

“The winners will not necessarily be every company funding the buildout,” said Tom Hainlin, national investment strategist at US Bank Asset Management. “They will be the businesses with pricing power, hard-to-replicate infrastructure and a clear path from spending to cash flow.” 

That’s not all: 

• Persistent inflation could weigh on consumer demand and profit margins, while slower economic growth would weaken revenue, Hainlin said. “With expectations already elevated, even solid results could produce volatility if companies lower their guidance or investors question the durability of growth.” 
• Then there’s the continued bond market rout. Higher bond yields increase borrowing and refinancing costs, and give investors a competitive alternative to stocks. Companies with highly leveraged balance sheets, large refinancing needs or interest-sensitive business models could see earnings pressure as financing costs rise, said Ross Mayfield, investment strategist at Baird. “If the AI capex build requires an increasing level of debt financing, then higher rates could weigh on forward profitability and add volatility to the whole ecosystem,” he added (though that may be more of a 2027 or 2028 story).

The Market’s Mismatch: A recent report from JPMorgan Wealth Management pointed out that while forward earnings expectations keep going up, stocks aren’t fully reflecting the trend. What could change that? Bond yields becoming less of a headwind and more certainty around how helpful AI will be for productivity long term.