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

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeInvestorAI-fuelled profit growth set to flow through every SP 500 sector'The overwhelming theme, which has been driving the broadening as well, has to do with the scale of AI-related capital spending'Author of the article:Ann Gehan and Chloé MeleyThe 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 ImagesThe 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.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountEvery 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.“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.”Canada's best source for investing news, analysis and insight.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Investor will soon be in your inbox.We encountered an issue signing you up. Please try againIndustrial 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.“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.”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.“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.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.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.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.The healthcare benchmark is set to return to earnings growth this quarter, while banks should deliver double-digit growth. Companies in these sectors are among the most willing to quantify AI-related gains, including cost reduction or improved productivity, according to research led by Barclays’ Krishna.Financial services companies are also set to profit from potential blockbuster initial public offerings of AI firms, and regional banks should benefit as more wealth flows through communities that are home to data centres, Kwon said.Though sectors such as consumer staples, real estate and industrials are set for solid growth over the next few quarters, some tougher spots remain.Among financials, the insurance industry is poised for an earnings decline in the third quarter as pricing weakens and loss costs rise. The media and advertising sector, part of communication services, is held back by tighter marketing budgets and customers turning to AI to make their own campaigns.The AI spending boom brings some risk being tethered so closely to one sector, Kwon said, adding that he turned more cautious on equities a few weeks ago because of concerns about continued AI-related capital expenditures.Potential challenges include rising interest rates and growing pressure on credit markets, according to Krishna.Growing public backlash in some communities where data centres are being built, as well as recent calls from top AI leaders to potentially slow development of powerful frontier models over safety concerns, could add more uncertainty.“Data centre moratoriums, especially heading into the midterms, I think that’s a big risk as well, especially on sentiment,” Kwon said, adding that any delays in data centre construction would be a downside for AI and tech stocks. “The AI trade is really a bottleneck trade right now, and any delays would alleviate that bottleneck at least a little bit.”—With assistance from Ignacio Gonzalez.We apologize, but this video has failed to load.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. 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