As the earnings season for S&P 500 companies kicks off, investors are keenly focused on the potential returns from artificial intelligence (AI) investments. Despite expectations for a slowdown in profit growth compared to the previous quarter, analysts predict a year-over-year earnings increase of 5.3%, a decrease from the 13.2% gain seen in the second quarter.
The technology and communication services sectors are anticipated to lead growth, with expected earnings increases of 15.4% and 12.3%, respectively, according to data from LSEG as of Friday. Major financial institutions, including JPMorgan Chase and Wells Fargo, are set to report earnings this week, unofficially marking the start of the reporting period.
Since last year, AI-focused companies have captured investor attention, with enthusiasm for AI strategies contributing to a remarkable rise in market performance. The S&P 500 index is currently at record highs, reflecting a roughly 21% increase year-to-date, fueled primarily by gains in technology and communication sectors.
Howard Chan, CEO of Kurv Investment Management in San Francisco, noted, “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.”
Notably, shares of Meta Platforms surged following its optimistic sales forecast for the third quarter, highlighting that increased digital advertising revenue could offset AI-related expenses. Meanwhile, tech giants like Microsoft and Google continue to invest significantly in AI, although the exact impact on their existing business models remains less clear, according to Chan.
As the earnings reports roll in, all eyes will be on how these companies leverage their AI investments to drive future growth.
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