Goldman Sachs has identified corporate earnings for the first quarter as "exceptionally strong," crediting that performance as the main driver behind the recent upswing in U.S. equity markets even as higher energy prices and geopolitical uncertainty cloud the outlook.
With 63% of S&P 500 companies having reported results, Goldman analyst Ben Snider says that, excluding one-time items, aggregate results are tracking to 16% earnings-per-share growth. Firms have posted the lowest incidence of EPS misses in 25 years outside of the COVID reopening period, according to the firm.
The headline aggregate S&P 500 EPS growth rate reads 25%, a figure Goldman cautions is distorted by idiosyncratic one-time benefits that lift the aggregate number.
Technology mega-caps have been a clear outlier this reporting season. Amazon, Alphabet, Meta and Microsoft together reported revenue growth of 20% and earnings growth of 61%, Snider notes, and investors have been treating revenue as an important proxy for the return on AI-related investment.
That same AI investment cycle is influencing longer-term analyst expectations. Estimates for 2026 AI hyperscaler capital expenditure now total $751 billion, which Goldman says is $80 billion higher than estimates at the start of the earnings season and 83% above estimated spending for 2025. Snider argues that the uplift in projected capex is prompting upward earnings revisions for companies supplying AI infrastructure and is skewing the risk profile for S&P 500 EPS estimates to the upside.
Despite the favorable earnings backdrop, Goldman flags several countervailing forces. Analyst margin estimates have been trimmed for most sectors as commodity input costs exert pressure on profitability. Additionally, the market's reward for earnings beats has been unusually muted this season, suggesting smaller market reactions to positive surprises.
Market positioning is another concern. Goldman’s U.S. Equity Sentiment Indicator has risen to 1.7, a level the bank associates historically with below-average returns over the following two to eight weeks. Taken together, the mix of strong reported results, elevated AI-driven capex expectations, margin compression and concentrated positioning presents a complex set of signals for investors.
What this means for investors
- Corporate fundamentals have strengthened in aggregate this quarter, driven in part by a small number of large technology firms.
- AI-driven capital expenditure expectations are materially higher and support upward revisions for infrastructure-focused companies.
- Margin pressures from commodity costs and stretched positioning create potential near-term headwinds for returns.