S&P 500 profits beat forecasts on AI spending and U.S. demand

S&P 500 companies reported quarterly results that exceeded analyst expectations, with aggregate earnings 16.3% above forecasts. Year-over-year earnings rose 27.5% and sales increased 11.1%. Aggregate revenue for the index was 2.0% above expectations.

Technology firms drove a large portion of the gains. The sector’s earnings grew 50.1% year over year and outpaced analyst forecasts by about 29.0%, supported by capital spending on AI infrastructure and higher software and cloud revenue.

Consumer Discretionary and Communications Services also posted earnings and revenue increases. Materials and Financials recorded year-over-year earnings growth of 39.6% and 23.5%, respectively.

U.S. small-cap companies showed mixed results. Aggregate small-cap earnings, revenue and analyst revisions were positive, but only six of 11 sectors posted year-over-year earnings growth, indicating narrower breadth. Financials in the small-cap group returned to positive earnings growth.

European companies beat earnings expectations in the quarter but missed revenue forecasts in nine sectors. Year-over-year revenue in Europe continued to contract. Japan returned to positive results across the board, with earnings surprises and broad sector-level gains in both earnings and revenue.

RiverFront Investment Group, which prepared the analysis, noted the relationship between market risks and profits. The firm wrote, “Macroeconomic and geopolitical risks matter most when they start to erode earnings – and right now, that simply isn’t happening.”

The report identified risks to watch, including the potential for higher interest rates to pressure fixed-income valuations and increase market volatility, and for international investments to face currency and political risks. Analysts’ estimate revisions and next-year profit projections will be monitored for signs of weakening.

Companies’ forward guidance produced a modest uptick in 12-month forward earnings estimates for the S&P 500. Market participants will track whether continued AI investment and U.S. consumer spending sustain the reported earnings and revenue trends in upcoming quarters.