With more than 90% of S&P 500 constituents having reported first-quarter figures, the corporate reporting season is shaping up to be the most robust in five years, according to Bank of America.
Bank of America data show first-quarter earnings per share (EPS) growth tracking at 26% year-on-year, a level not seen since 2021. When one-time gains recorded by some of the largest technology companies are removed, the comparable EPS growth rate is still a healthy 18%.
Company-level performance on the headline metrics has also been notable. Some 64% of firms have beaten both EPS and sales expectations in the quarter, marking the highest outperformance rate in five years.
Forward-looking commentary from management teams has been sturdier than some market participants feared. Despite geopolitical concerns - particularly related to the Iran conflict - the ratio of above- to below-consensus EPS guidance this season is running at 1.6 times, comfortably above the long-term average of 0.8 times.
Analysts at Bank of America highlighted that estimates for 2026 and for the second quarter have been revised higher recently, rising 4% and 2% respectively since April 1. Consensus projections now put full-year 2026 EPS growth at 22% year-on-year, up from 15% at the start of the year. Bank of America strategists noted that, while this pace of profit growth sits above a 2.2% U.S. real GDP growth backdrop, they regard it as achievable given the interplay of AI-driven demand and strength in commodity-related sectors.
The spending cycle tied to artificial intelligence has emerged as one of the dominant narratives of the season. Earnings-related commentary from Amazon, Google, Microsoft and Meta showed that the four major hyperscale cloud and AI platforms guided 2026 capital expenditures a combined $50 billion above consensus expectations.
Bank of America’s semiconductor team has lifted its projection for total hyperscale capex in 2026 to more than $800 billion, a 67% increase year-on-year, with a pathway toward exceeding $1 trillion by 2027. The firm expects capital expenditures as a share of operating cash flow to climb from 70% in 2025 to nearly 100% in 2026, a shift that will compress near-term free cash flow.
On the demand side, company commentary continues to reflect a so-called K-shaped consumer dynamic, where higher-income households are outpacing lower-income cohorts. Bank of America card payment data indicated that headline spending held up in April, but lower- and middle-income households reduced discretionary purchases.
The strategists also pointed to higher gasoline prices linked to the Iran conflict as eroding more than half of the stimulus effect from tax refunds, a drag that can blunt some consumer relief.
Separately, a promotional feature within the reporting period questioned whether investors should allocate $2,000 to MSFT. That same feature described a proprietary AI-driven selection tool, ProPicks AI, which evaluates Microsoft along with many other companies using over 100 financial metrics to identify stocks with favorable risk-reward profiles.
Overall, the first-quarter reporting cycle is notable both for strong headline earnings growth and for themes that will shape near-term corporate performance: elevated hyperscaler capex tied to AI deployments, a commodity sector providing cyclical support, and an uneven consumer spending backdrop that varies by income segment. These elements together explain why analysts have raised earnings forecasts for 2026 even as firms signal tighter free cash flow in the short run due to capex intensity.