Q2 Earnings Check-In

As of 7/31/2026, 61% of S&P 500 companies have reported.
Here are a few takeaways.

1. Strong Q2 earnings growth was further boosted by
hyperscalers' non-operating income

Without Alphabet and Amazon (and their net investment gains in Anthropic and SpaceX), 
the quarter's earnings growth rate would fall from 47.4% to 28.8%.

 
Unrealized investment gains at mega-caps are emerging as a key theme in 2026, highlighting both capital recycling and value creation within the tech ecosystem.

2. AI Infrastructure stocks are taking over S&P 500 earnings growth

The top contributors to the quarter's earnings growth are MU, GOOGL, CVX, AMZN, and NVDA.

In Q2, a third of S&P 500 earnings growth was from AI infra stocks, which is expected to increase to more than half for the remainder of 2026 and 64% for 2027.

3. Margin strength and expansion is concentrated in broad tech

Margin level is driven by a few sectors: Tech, Communication Services, and Financials.

While mega-cap profitability has lifted the S&P 500's overall margin,
the median S&P 500 stock has not benefited.

 4. Many signs that AI spending is paying off

Hyperscaler revenue growth is accelerating.

Cloud revenue growth in Q2 (YoY):

Google Cloud: +82%
Microsoft Azure: +43%
Amazon AWS: +37%

Hence more CapEx.

 5. Mega-caps valuation premium has disappeared

The forward P/E of the top 10 S&P 500 stocks is now on par with the rest of the index,
thanks to their mind-blowing earnings growth. 

Source: JP Morgan

 6. The S&P 500 now offers higher growth at lower multiples

Aggregate S&P 500 earnings growth is expected to be robust for 2026 and 2027.

Forward PE back to the 10-yr average, below the 5-yr average.