AI-fuelled profit growth set to flow through every SP 500 sector

The big winners of the past few quarters — Big Tech and oil — are still expected to stand out with earnings growth far ahead of other sectors. Photo by Michael Nagle/Bloomberg via Getty Images

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The next earnings season is set to be robust across the board, as the benefits of artificial intelligence spending start to flow across the United States economy.

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Every single sector in the S&P 500 is expected to deliver earnings growth for the third quarter, the first time since 2021, when corporate America emerged from the pandemic slump, Bloomberg Intelligence data indicate.

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“Things have started to broaden out — even last quarter, we have seen pretty sizable beats from non-AI companies as well,” Ohsung Kwon, chief equity strategist at Wells Fargo, said in an interview. “We are starting to see broader strength in earnings.”

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Industrial firms that make products such as vacuum pumps, cooling systems and specialty paint coatings have seen revenues surge as data centre construction continues to stoke demand for their products. Consumer companies are getting a boost from the AI buildout, which is creating jobs and demand for housing, while rising stock portfolios are encouraging people to splurge on shopping, travel and dining out.

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“The overwhelming theme, which has been driving the broadening as well, has to do with the scale of AI-related capital spending,” said Venu Krishna, head of U.S. equity strategy at Barclays. “That dollar amount is so high that what the hyperscalers are spending in terms of AI capex is effectively the revenue for a whole bunch of other industries, whether it’s storage, whether it’s hardware, whether it’s parts of industrials, parts of energy, parts of utilities.”

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The big winners of the past few quarters — Big Tech and oil — are still expected to stand out with earnings growth far ahead of other sectors, at 62 per cent and 111 per cent, respectively. The rest of the benchmark is also seen expanding as a wider range of companies benefit from growing AI use.

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“When rates go up, one of the first casualties is construction jobs, but we haven’t seen that because the data centre growth has been so dramatic that most of the labour has been reallocated,” Krishna said.

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Aramark boosted its outlook for the second time this year after signing new deals with data centre operators to provide catering, cleaning and transportation services at their campuses, which are expected to bring in between US$400 million and US$500 million in additional revenue over the next two years.

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Consumer companies are also starting to capitalize on the implementation of AI in their own operations. For instance, investments in AI-powered shopping tools, customer service and distribution can make baby clothes company Carter’s Inc. more efficient and help drive margin expansion, according to BI’s Mary Ross Gilbert.