AI Will Drive a Strong US Earnings Season, Goldman’s Snider Says

US companies are set for another strong earnings season, driven by the AI investment boom and windfall profits for energy companies, according to Goldman Sachs Group Inc. strategists.

Analysts expect S&P 500 earnings to surge 22% in the second quarter, a hurdle that companies should be able to clear, the team led by Ben Snider wrote in a note. With this year’s rally in US stocks being driven by blockbuster profits, the upcoming reporting season will be a critical catalyst for the market, they wrote.

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The key issue for investors will be AI spending outside the big tech companies, known as hyperscalers, and whether all that investment is starting to pay off, the strategists said. AI infrastructure stocks, in particular, are set to contribute nearly 60% of S&P 500 earnings-per-share growth in the quarter, they estimated, adding that Micron Technology Inc. and Nvidia Corp. may account for more than 40%.

The second-quarter “reports will reveal another quarter of strong earnings growth, supported by a solid macro backdrop and the ongoing AI investment boom,” the strategists wrote.

Source: Bloomberg Intelligence

Higher energy prices will also be a big factor this earnings season. Oil producers are expected to reap profits from the jump in crude prices during the quarter, while consumer companies suffer from cost pressures. For the median S&P 500 company, the consensus is for profits to grow by 9%, according to the Goldman strategists.

“The dispersion of growth expectations across sectors and stocks is wide,” they wrote.

The bank’s bullish outlook echoes forecasts compiled by Bloomberg Intelligence that suggest profits may jump by about 23% in the second quarter. That would come close to the past quarter’s blowout earnings season.

First-quarter profits at S&P 500 companies surged almost 30%, more than double the roughly 12% analysts had penciled in. The last time year-on-year earnings grew at that pace outside of recoveries from major shocks was over two decades ago, in 2004.

Here’s a look at what other strategists are saying today:

Morgan Stanley: US equity market breadth is improving as earnings recover beyond megacap tech, crude prices fall and crowded AI momentum trades in hyperscalers and semiconductors come under pressure, according to strategists including Mike Wilson.
RBC Capital Markets: Strategist Lori Calvasina raised the 12-month target for the S&P 500, citing a solid earnings outlook and strong macro backdrop. The new estimate is around 8,150, implying gains of about 11% from current levels.
Unicredit SpA: The team said earnings revisions may moderate, but overall trend is positive.

— With assistance from Sagarika Jaisinghani