Q2 Outlook: Tech and Energy Lift S&P 500 EPS

FactSet projects S&P 500 earnings per share will rise 23.3% in the second quarter, a second consecutive quarter of more than 20% growth despite inflation, softer labor market data and ongoing geopolitical conflicts. Analysts expect information technology and energy to drive most of the gain, while healthcare is forecast to decline 9.5% year over year.

FactSet data show energy posted the largest increase in Q2 EPS estimates of the 11 sectors, rising 61.5% over the past quarter. Higher oil prices and stronger demand for power have allowed producers and refiners to sell at higher margins. The State Street Energy Select SPDR ETF has climbed 24.3% year to date and has seen $3.54 billion of inflows so far this year.

Information technology estimates rose 8.7% over the past quarter. The sector reported the highest number of companies issuing positive EPS guidance for the quarter, with 44 firms flagging better outlooks. Tech gains are linked to rising capital spending on AI projects and strong results at chip and memory makers. The State Street Technology Select Sector SPDR ETF has returned 29.1% year to date and attracted about $932 million in inflows.

Semiconductor and memory markets are a key driver of tech earnings growth. Analysts describe current demand as a supercycle, with cloud providers and AI companies expanding data center builds and putting pressure on capacity. The global semiconductor market is forecast to generate about $1.3 trillion in revenue in 2026. Micron reported Q2 EPS of $25.11 and revenue of $41.5 billion, above analyst estimates of $20.39 and $35.1 billion.

Mega-cap cloud and internet companies plan large investments in AI and data centers over the next decade. Research cited by FactSet projects Amazon, Meta, Google and Oracle could spend about $5.3 trillion on AI and data center projects by 2030. Those capital outlays are increasing capital intensity and will be a focus for investors monitoring returns on AI spending.

Healthcare is the only sector forecast to post a year-over-year earnings decline, with FactSet estimating a 9.5% drop. Managed-care companies and insurers face higher patient utilization and rising pharmacy costs, in part from wider use of GLP-1 weight-loss drugs. A Gallup survey shows U.S. adults using GLP-1 drugs for weight loss rose from 3% in 2024 to 11% in 2026, increasing medical payout ratios.

Hospitals and providers are reporting margin pressure as the cost of delivering care grows faster than revenue. Factors cited include higher drug costs, elevated labor expenses and continued underpayments from Medicare. The end of enhanced Affordable Care Act premium subsidies at the end of 2025 has raised out-of-pocket premiums for many consumers, and Medicaid disenrollments have increased uncompensated care. The State Street Health Care Select SPDR ETF has returned 5.7% this year and recorded $191.9 million of inflows.

Investors will watch quarterly reports for commentary on AI spending, chip supply constraints and capital intensity at large cloud operators. Results from semiconductor firms and major cloud companies are expected to shape market reactions during the earnings season.