Back then, however, the base effect was highly favorable as business activity had previously been severely impacted by Covid in 2020. This makes the current performance all the more remarkable.
Results are, unsurprisingly, bolstered by AI. For instance, profits for the three major memory chip players are skyrocketing. AI has triggered a surge in demand and caused shortages, granting these companies unprecedented pricing power. Micron's EBITDA margin is thus expected to reach 82% by 2026, according to S&P data.
Hyperscalers - Amazon, Alphabet, Meta, and Microsoft - are also fully capitalizing on the AI boom. Consequently, the "Magnificent 7" posted 61% growth in Q1, nearly quadruple that of the other 493 stocks in the S&P 500.
Source: Factset
However, it is not just Big Tech driving the bottom line. Overall, 84% of companies are reporting above expectations, with earnings averaging 20.7% above consensus. One must again look back to 2021 to find similar figures. According to Factset, S&P 500 profit margins have hit their highest level since 2009, at 13.4%.
This impressive earnings momentum has enabled Wall Street to regain the upper hand over Europe. According to Bloomberg, EPS for the MSCI Europe grew by only 5.7% in Q1, following three years of stagnant earnings growth.
Returning to the US, earnings estimates for 2026 have also been significantly raised in recent weeks. As previously noted in these columns, this trend was already underway in March and April, despite fears surrounding the conflict in Iran. Since mid-April, the release of financial results, often accompanied by management guidance hikes, has further accelerated this trend. Analysts now forecast 21.3% EPS growth for 2026.
This earnings expansion is helping to keep valuations in check, despite indices trading at all-time highs. The S&P 500 is currently trading at approximately 21x earnings, compared to over 23x last autumn.
