AI firms to lead US earnings growth at 48% through 2027: Report

A Jefferies report projects AI-related firms will lead US corporate earnings, with the S&P 500's AI basket growing at 48% annually during 2026-27. This is over double the growth of the broader S&P 500, driven by AI infrastructure spending.

AI-related companies are expected to lead US corporate earnings growth through 2027, with earnings of the S&P 500's AI basket projected to grow at an annualised 48 per cent during 2026-27, according to a Jefferies report.

Jefferies said the estimate is more than double the projected 23 per cent annualised earnings growth for the broader S&P 500 and 12 per cent for the index excluding AI-related companies. "Overall AI EPS growth for the S&P500 AI basket" is estimated at 48 per cent annualised for 2026-27, the report said.

The report said the strong growth would be driven mainly by memory and packaging, computing and AI servers, as companies continue to increase spending on artificial intelligence infrastructure.

Broader Earnings Outlook Improves

Jefferies said the ongoing AI capital expenditure "arms race" remains a major driver of earnings, although earnings growth in non-AI sectors is also expected to remain healthy. The broader outlook for US corporate earnings has also improved. Consensus estimates now show S&P 500 earnings per share (EPS) growing 26.1 per cent in 2026, up from 24.4 per cent a month earlier. Excluding AI-related companies, EPS growth is now expected at 14.9 per cent in 2026, compared with 14 per cent at the end of June.

Strong Q2 and Q3 Performance

The report said nearly 80 per cent of companies in the MSCI USA universe had reported their second-quarter results, with 85 per cent beating earnings expectations. S&P 500 second-quarter EPS rose 40.6 per cent year-on-year, marking the strongest growth in a post-global financial crisis quarter, excluding the Covid period.

For the third quarter, S&P 500 earnings are expected to rise 28.6 per cent year-on-year, while the information technology sector is projected to post 61.1 per cent growth. Semiconductor and semiconductor materials and equipment companies are expected to be among the key contributors.

Capex Pressure on Cash Flows

However, Jefferies flagged rising capital expenditure as a potential pressure on cash flows. The combined free cash flow of four major US hyperscalers fell to USD 7 billion in the second quarter from USD 60 billion in the fourth quarter of 2025. At the same time, their combined capital expenditure rose to USD 165 billion from USD 72 billion in the first quarter of 2025.

Despite the higher spending, cloud revenues of Microsoft, Google and Amazon increased 38 per cent year-on-year to USD 126 billion in the second quarter. Their contracted revenue backlog, or remaining performance obligations (RPOs), also reached USD 2.34 trillion.

Jefferies said the figures point to continued strong demand for AI and cloud infrastructure, even as companies face higher investment requirements.

Inflation Data In Line with Expectations

The report also noted that US headline consumer price inflation rose 3.4 per cent year-on-year in July, while core CPI increased 2.5 per cent. Both figures were in line with consensus expectations. (ANI)

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