NEW YORK : Investors will be looking for evidence that investment in artificial intelligence among S&P 500 companies is beginning to pay off as the reporting season progresses, despite the fact that analysts expect profit growth to decelerate from the previous quarter.
S&P 500 earnings are estimated to have increased 5.3 per cent over the year-ago quarter, down from a second-quarter gain of 13.2 per cent, but technology and communication services sectors are forecast to have the strongest year-over-year growth, according to LSEG data as of Friday.
The earnings period unofficially kicks off this week, with reports from major financial firms including JPMorgan Chase and Wells Fargo due Friday.
AI-related companies have dominated earnings since last year, and optimism over AI plans have helped to drive strong gains in the market. The S&P 500 is at record high levels and up roughly 21 per cent for the year so far, with tech and communication services leading sector gains since Dec. 31.
“Many analysts will start looking at how and if a lot of these larger companies can monetize the model that they’re training, and we’ve seen the ones that have been able to do so have been rewarded quite well,” said Howard Chan, chief executive officer of Kurv Investment Management in San Francisco.
Technology sector earnings in aggregate are expected to have gained 15.4 per cent from the year-ago quarter, while communication services earnings are seen up 12.3 per cent, based on LSEG data.
Shares of Meta Platforms jumped on Aug. 1, a day after it issued an upbeat sales forecast for the third quarter, signaling that digital-ad spending on its social media platforms can cover the cost of its AI investments.
“Companies like Microsoft and Google, they’re spending quite a bit, but it’s a little bit less understood… how that will interplay with their existing businesses,”
