The second-quarter earnings season placed the ongoing AI boom firmly in the spotlight for investors after mounting fears over capital expenditures and free cash flow among hyperscalers. But Wall Street’s hyperscalers passed with flying colors.
Buoyed by earnings optimism, the S&P 500 has once again entered uncharted territory as new all-time highs have been recorded by the index, but what’s in store for the second half of the year?
In response to the positive earnings among Wall Street’s leading blue chips, JPMorgan analysts once again raised their expectations for the year, increasing their target to 8,000 points.
The team led by Dubravko Lakos-Bujas pushed up their initial target of 7,600 to 7,8000 in June, but recent movements have helped to push expectations towards yet another milestone figure, with implied gains of around 3% based on last week’s close.
Given that the US benchmark only crossed the 5,000 boundary for the first time in February 2024, these new forecasts underline the sheer strength of the S&P 500 following the emergence of generative AI and the launch of OpenAI’s ChatGPT large-language model in November 2022.
The prospect of reaching 8,000 hasn’t always seemed so likely this year, and following the outbreak of war between the United States and Iran, the index suffered a severe downturn as investors sought to factor in the ramifications on inflation and the cost of living.
At its weakest point, the S&P 500 experienced losses of more than 8.5% moving into March, slipping towards 6,300. But Q2 earnings have helped to shake off lingering anxiety about the geopolitical outlook for the US as Wall Street’s hyperscalers are able to show their strength. Now, it’s a question of how high the benchmark can go.
Earnings season optimism
Last quarter’s earnings season had begun with some jitters, as Alphabet experienced a 5% drop following its raised capex expectations, which had been increased to a range of between $195 billion and $205 billion, representing a $15 billion increase at its midpoint.
“Alphabet’s struggles following its earnings, which announced a beat-and-raise quarter where revenue, cloud growth, and backlog all increased, were down to widespread unease about the state of spending among hyperscalers,” explained Vsevolod Smirnov, CMO at Just2Trade.
“We’re seeing Magnificent Seven spending on AI infrastructure accelerate towards $750 in 2026 alone, so this earnings season was critical in helping investors to get a more comprehensive overview of whether all this capex was paying off.”
To say that Q2 earnings on the S&P 500 were a success would be an understatement. Data suggests that 86% of companies on the index have reported earnings per share (EPS) above analyst expectations, while 77% have exceeded revenue forecasts.
Additionally, the blended earnings growth rate for the benchmark in Q2 2026 currently stands at 47.4% year-over-year, which would mark the strongest earnings growth for almost five years.
Validating fundamentals
The strength shown throughout the Q2 earnings season is helping to validate corporate fundamentals, which had increasingly come into question as capex among some of the United States’ largest companies continued to grow.
Rather than clearing reduced consensus hurdles, results are showing that companies are offering plenty of encouragement for order trends, margin resilience, and full-year demand. This strength is supporting rosier analyst models, which is prompting a series of upward revisions for the third quarter and beyond.
Data shows that Q3 earnings growth estimates have now steadily increased from a reading of 14% in January to 21.7% in recent days.
These positive revision patterns have been supported by an emerging tailwind that’s been building for almost a year, which has helped to leave the S&P 500 in good stead to achieve further growth throughout the second half of 2026.
Historically speaking, these upward adjustments have been highly concentrated in technology, but the geopolitical outlook has brought the energy sector into the fray too. However, looking ahead to the third quarter, we’re seeing a broader range of forecasts that are set to encompass industries linked to transportation, finance, aerospace, industrials, utilities, and construction, as well as tech and energy.
What’s next for the S&P 500?
The recent earnings season was a big test for Wall Street’s biggest players, and investors appear to have renewed their faith in US equities and the AI boom in its entirety.
The inflationary impact of the war in Iran may still present a future headwind in the United States, but for now we’ve seen our clearest indication yet that heavy AI spending has been justified by hyperscaler fundamentals.
With this in mind, 8,000 now appears to be just a matter of time. If the revenue beats keep coming, we may see more upward analyst revisions take place by the end of the next quarter.
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