AI-fueled earnings momentum has Wall Street leaning risk-on
Stocks are hovering near records even after Friday's sell-off. Since the April lows, the S&P 500 has climbed more than 30% (about 1,800 points), while the Nasdaq Composite is up roughly 50% over six months.
Consensus now looks for S&P 500 third-quarter earnings to rise about 8% year over year, which would mark the ninth straight quarter of profit growth, per FactSet. The bar is high, but so is positioning.
Guidance is strongest in software and semis
Tech management teams are guiding earnings higher more than any other sector. Software vendors are monetizing AI add-ons, and semiconductor names are printing orders tied to accelerators, high-bandwidth memory, and data center buildouts.
Key tells: AI feature uptake rates, pricing on seat-based add-ons, GPU and networking lead times, and gross margin mix shifts. Expect tight commentary on cloud spend and enterprise budgets into Q4.
The OpenAI-AMD tie-up and the bubble question
The latest linkage between ChatGPT's creator and AMD has reopened the bubble debate. Bulls point to actual cash flows and nine straight quarters of earnings growth; bears focus on multiples and crowding.
What breaks the stalemate isn't headlines-it's guidance quality. Beats with raised full-year ranges will extend the move; beats with cautious outlooks likely fade.
What to watch this earnings season
- Revision breadth: the ratio of raises to cuts across the S&P 500, not just megacaps.
- Margins: gross margin from AI mix, opex discipline, and unit economics on AI workloads.
- Data center supply chain: accelerator shipments, networking bottlenecks, and electrical capacity constraints.
- Cloud capex: hyperscaler spend cadence and multi-year commitments to AI infrastructure.
- Banks kicking off: deposit betas, NIM glide path, CRE reserve builds, and consumer delinquencies.
- Capital returns: buybacks resuming post-blackout and any dividend resets.
Positioning ideas to consider (not advice)
- Barbell exposure: leading semis and infrastructure suppliers on one side; cash-generative software with clear AI monetization on the other.
- Favor profitable names with visible backlog and free cash flow conversion over story stocks.
- Use baskets or equal-weight sleeves to manage single-name gap risk through prints.
- Hedge tactically: put spreads or collars into volatile reports where implieds are rich.
- Second-order beneficiaries: memory, packaging, liquid cooling, power distribution, and grid upgrades tied to new data centers.
Risks that can derail the rally
- Rates stay higher for longer, pressuring multiples and refinancing costs.
- GPU and networking supply remains tight, delaying revenue recognition.
- Regulatory shifts or content liability push costs higher for AI platforms.
- Data center energy constraints slow deployments.
- AI monetization lags adoption, creating a gap between usage and revenue.
Fast checklist for your earnings model
- Revenue vs. EPS: is the beat quality margin-driven or volume-driven?
- Sequential gross margin guide and commentary on AI mix and memory costs.
- Opex growth vs. headcount plans; AI R&D capitalization disclosures.
- AI-specific KPIs: attach rates, ARR from AI add-ons, bookings/backlog tied to AI projects.
- FY guide delta and cash return plans post-quarter.
Further reading
For data on earnings trends, see FactSet Earnings Insight. For index methodology and performance context, visit S&P Dow Jones Indices.
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