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Posted July 20, 2026 at 10:00 am
Last week kicked off the 2Q26 earnings season, and two shortages appear to have driven much of the growth: disrupted Middle East oil supply and scarce AI hardware. Analysts expect S&P 500 earnings to rise 23% y/y, which, if realized, would mark a second straight quarter of 20%+ growth — a feat seen only once in the past two decades, in 2018, when earnings had not declined the year before.
Looking across sectors, Energy EPS is expected to grow fastest, at around 120% y/y, buoyed by higher oil prices after the war disrupted Middle East supply. However, IT is yet again doing most of the heavy lifting: EPS is expected to rise 61%, driving two-thirds of S&P 500 EPS growth. Within IT, though, the profit pool is shifting. As this week’s chart shows, earlier in the AI cycle, hyperscalers drove more growth, whereas in 2Q, semiconductors are expected to generate nearly half of S&P 500 earnings growth. As these hyperscalers race for AI dominance, demand for chips and memory has outpaced supply, allowing suppliers to charge more and expand margins. Put simply, chip buyers are funding an earnings boom for chip sellers.
Looking ahead, the pace of earnings growth is likely near its peak. Energy’s outsized earnings growth should prove short-lived as oil prices ease and supply normalizes. The AI imbalance may take longer to resolve, but it cannot persist indefinitely. With hyperscaler margins already contracting, either AI monetization catches up with spending or AI capex growth eventually slows, cooling semiconductor earnings growth as well. Therefore, the earnings outlook from here rests on how quickly hyperscalers can show the receipts from their AI spending.
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