The Zhitong Finance App learned that as AI spending dividends begin to spread to the entire economy, the next earnings season is expected to strengthen across the board. According to research data, all segments of the S&P 500 index are expected to achieve profit growth in the third quarter. This will be the first time since US companies emerged from the trough of the pandemic in 2021.
“Profitability has begun to spread — just last quarter, non-AI companies also surpassed expectations quite significantly,” said Ohsung Kwon, chief stock strategist at Wells Fargo Bank, in an interview. “We're starting to see earnings stronger more generally.”
Industrial companies that produce products such as vacuum pumps, cooling systems, and specialty coatings have surged in revenue as data center construction continues to boost demand for their products. Consumer companies are benefiting from AI construction, which is creating jobs and housing demand, while rising stock portfolios are encouraging people to shop, travel, and eat out.
“The overwhelming theme is also a factor driving profit diffusion, and is related to the scale of AI-related capital expenditure,” said Venu Krishna, head of US equity strategy at Barclays. “This amount is so high that hyperscale cloud vendors spend on AI capital expenditure actually revenue from many other industries, whether it's storage, hardware, or some industries, energy, and utilities.”
The big winners of the past few quarters — big tech stocks and oil stocks — are still expected to stand out, with profit growth rates of 62% and 111%, respectively, far surpassing other sectors. The rest of the benchmark index is also expected to expand as a wider range of companies benefit from increased AI usage.
“When interest rates rose, one of the first sectors to be hit was construction employment, but we haven't seen this yet because data centers are growing so rapidly and most of the workforce has been reallocated,” Krishna said.
Emma raised its performance outlook for the second time this year, after signing new agreements with data center operators to provide catering, cleaning and transportation services to its parks. It is expected to bring in additional revenue of 400 million to 500 million US dollars over the next two years.
Consumer companies are also beginning to use AI to implement in their own operations. Analyst Mary Ross Gilbert said that investments in AI-driven shopping tools, customer service and distribution can make baby clothing company Carter more efficient and help drive profit margin expansion.
The healthcare sector is expected to resume profit growth this quarter, while banks are expected to achieve double-digit growth. According to research led by Barclays Krishna, companies in these sectors are most willing to quantify AI-related benefits, including cost reductions or productivity gains.
Kwon said that financial services companies are also expected to profit from AI companies' potentially major IPOs, while regional banks should benefit from more wealth flowing through the communities where the data centers are located.
Although sectors such as consumer necessities, real estate, and industry are expected to grow steadily over the next few quarters, some of the more difficult sectors remain.
In the financial sector, the insurance industry expects profits to decline in the third quarter due to weakening pricing and rising loss costs. The media and advertising sector in communications services has been hampered by tight marketing budgets and customers turning to AI to create their own advertising campaigns.
Kwon said that the AI spending boom poses the risk of being tied too tightly to a single sector, adding that he became cautious about stocks a few weeks ago due to concerns about whether AI-related capital spending could continue.
Krishna said potential challenges include rising interest rates and increased pressure on credit markets.
The intensification of public backlash in some communities where the data center was built, and recent calls by top AI leaders for a possible slowdown in the development of powerful cutting-edge models citing security concerns may add more uncertainty.
“The data center moratorium, especially when it comes to the midterm elections, I think is also a huge risk, especially in terms of market sentiment,” Kwon said, adding that any delay in data center construction would pose a downside risk to AI and technology stocks. “AI trading is currently a bottleneck transaction, and any delay will at least slightly ease this bottleneck.”