Large earnings surprises that have supported the artificial intelligence (AI) rally may be difficult to replicate in the second quarter earnings season. While corporate profits are expected to continue rising, market expectations have already increased significantly.
On July 8, Christian Müller-Glissmann, head of portfolio strategy and asset allocation research at Goldman Sachs, stated in a Bloomberg TV interview, "The large earnings surprises driven by AI appear to be nearing their end."
Goldman Sachs projected a 22% increase in earnings for S&P 500 companies for the second quarter of this year. Financial data provider FactSet also reported that the earnings growth forecast for the S&P 500 has risen to 23.3%, up from 18.8% at the beginning of the quarter.
Müller-Glissmann believes there is a strong possibility that companies will exceed market expectations this season. However, he noted that stock prices have already largely reflected AI expectations, making it difficult for earnings alone to trigger another market rally.
He also identified the leveraged investments concentrated in semiconductor stocks as a potential burden. "The leverage positions in the semiconductor sector, which involve using debt to enhance returns, had once reached excessive levels, and this trend has recently begun to reverse," he explained.
Nonetheless, Goldman Sachs does not view the trend of AI investments as having diminished. Müller-Glissmann assessed that "big tech and major cloud companies have already secured a significant portion of AI infrastructure, placing them in a favorable position."
As a result, the focus for this earnings season is likely to shift from the reported numbers to future outlooks. The market is expected to pay closer attention to the sustainability of AI investments, investment profitability, and management's assessments of demand for the second half of the year.
* This article has been translated by AI.
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