US 2Q26 earnings review: Strong earnings beats, but valuations keep us underweight

• S&P 500 blended earnings growth accelerated to 47.4% YoY in 2Q26, driven by broad-based strength across 10 of 11 sectors.

• Energy, Communication Services, Consumer Discretionary and Information Technology led sector earnings growth, driven by oil prices, Alphabet, Amazon and AI-related semiconductor demand.

• Financials delivered the largest earnings surprise outside of sectors boosted by one-off gains, powered by a 72% surge in equities trading revenue and robust capital markets activity.

• We raise our S&P 500 target to 9,140, yet remain underweight US equities given stronger earnings growth and cheaper valuations in Asia.

• We stay neutral on semiconductors, positive on internet companies benefiting from AI monetisation, and cautious on consumer companies.

US companies are off to a strong start this second-quarter earnings season, reporting robust double-digit profit growth despite higher energy costs and elevated interest rates.

As of 31 July 2026, 61% of S&P 500 companies have reported 2Q26 results, with 86% delivering positive earnings per share (EPS) surprise — above both the 5-year average of 78% and the 10-year average of 76%. The blended (year-on-year) earnings growth rate for the index currently stands at 47.4%. If this holds as the actual growth rate for the quarter, it will mark the strongest earnings growth since the second quarter of 2021 (91.6%), and a sharp acceleration from the 28.8% recorded in 1Q26. Growth has also been broad-based, with 10 of 11 sectors reporting YoY earnings growth and 9 of 11 reporting earnings above consensus estimates.

Figure 1: US companies have delivered excellent results thus far

Drivers of earnings growth

Energy

The Energy sector is reporting the highest YoY earnings growth of all eleven sectors at 135.3%, driven primarily by the sharp surge in crude oil prices following the US–Iran conflict. The average oil price in 2Q26 (USD 92.55) was 45% above the 2Q25 average of USD 63.68. Against this backdrop, ExxonMobil's adjusted EPS rose 115% YoY, while Chevron's adjusted EPS climbed 242%.

This strong earnings momentum is expected to persist into the third quarter, with sector earnings growth projected at approximately 88% YoY.

Communication Services

The Communication Services sector's strong blended earnings growth of 109.8% was led by a single company – Alphabet. The sector’s earnings would have declined by 5.7% YoY if Alphabet were excluded.

Alphabet reported YoY earnings growth of 294%, boosted by USD 99.0 billion in unrealised gains from the company’s equity securities portfolio, likely reflecting the appreciation of investments in companies such as SpaceX and Anthropic. Even excluding this non-operating gain, earnings would still have grown by around 23%, supported by an 82% increase in Google Cloud revenue and 17% growth in Google Search & Other revenue.

We remain positive on Alphabet, as its AI investments are increasingly translating into tangible monetisation across the AI ecosystem, from strong Google Cloud demand to improved Search engagement and advertising performance. Cloud backlog, in particular, rose 11% quarter-on-quarter to USD 514 billion from USD 462 billion in 1Q26, signalling sustained enterprise demand for AI ahead.

Unlike in 1Q26, Meta was a detractor for the sector with earnings declining 13.5%. This was primarily due to USD 2.4 billion in charges related to legal proceedings pertaining to youth safety and addiction, along with USD 1.2 billion in severance expenses tied to the company's headcount reduction in May this year. The company’s 28% revenue growth still exceeded expectations, with its Family of Apps advertising revenue rising 27% YoY.

We are encouraged by Meta's progress in monetising its non-advertising businesses through consumer AI subscriptions, paid access to its AI models for developers and Business Agents, and potential selective compute leasing.

Related articles:
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Consumer Discretionary

Similar to the Communication Services sector, Consumer Discretionary’s strong earnings growth of 90.7% was primarily driven by a single company – Amazon. Excluding Amazon, the blended growth rate of the sector would fall to only 6.6%.

Amazon reported earnings growth of 242% (EPS of USD 5.75), benefitting from USD 53.4 billion of non-operating pre-tax gains, primarily reflecting an unrealised mark-to-market gain on Amazon's investment in Anthropic. Excluding this one-off gain, underlying EPS is estimated at around USD 1.90–1.95, still above consensus expectations of USD 1.82.

The company continued to deliver strong underlying operating performance, with revenue increasing 20%, driven by a 37% increase in Amazon Web Services (AWS) revenue. AWS backlog also increased 36% quarter-on-quarter, marking the fastest backlog growth among the major cloud providers and pointing to sustained demand that should support revenue growth over the coming quarters.

Related article: Amazon 2Q26 Earnings Update: Tale of Two Halves

Information Technology

The IT sector continues to drive S&P 500 earnings, with blended earnings growth of 69.4%. The Semiconductors & Semiconductor Equipment industry is the largest contributor to earnings growth for the sector at 135%. Excluding this industry, the blended earnings growth rate for the IT sector would fall to 33.0% from 69.4%.

Micron, which reported earnings in late June, saw its fiscal third-quarter revenue more than quadruple to USD 41.46 billion from USD 23.86 billion, while net income surged 1,223%. Importantly, management said that DRAM and NAND industry demand continues to significantly exceed industry supply, with tight conditions expected to persist beyond calendar 2027 due to sustained AI-driven demand.

Intel also delivered a strong quarter, with 2Q revenue growth of 25.4%, driven by robust 59% growth in its Data Centre and Artificial Intelligence (DCAI) division, accelerating from 22% in the prior quarter. The company reported non-GAAP EPS of USD 0.42, roughly double consensus estimates. CFO David Zinsner said the company remains supply constrained, with data centre customers demanding more than it can produce.

Outside of semiconductors, Microsoft also delivered a strong beat on both revenue and earnings, with revenue growing 18% YoY (vs. 15% consensus) and non-GAAP earnings rising 23% (vs. 10% consensus), driven by continued cloud and AI momentum. Azure revenue growth accelerated to 43%, compared with 40% in the previous quarter. Commercial remaining performance obligations (RPO) surged 84% YoY to USD 678 billion, up 8% QoQ. This provides strong visibility into future cloud and AI revenue growth.

Apple also delivered better-than-expected results, with its fiscal third-quarter revenue rising 16% YoY to USD 109.4 billion and earnings of USD 2.02 per share topping consensus estimates of USD 1.89. Growth was led by hardware, with iPhone revenue up 21.7% and Mac revenue up 28.7% YoY. That said, rising memory costs are beginning to pressure margins, while component shortages are limiting near-term revenue conversion and weighing on the company's sales outlook.

Related articles:

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Micron Q326: The Night Is Still Young

Intel Q226: Upgraded TP, retain sell

Financials

Excluding the Communication Services and Consumer Discretionary sectors, which benefited from one-off gains at Alphabet and Amazon, the Financials sector delivered the largest earnings surprise in 2Q26. The sector benefited from a combination of surging equities trading revenue, robust capital markets activity and resilient consumer banking fundamentals.

JPMorgan, Goldman Sachs, Citigroup and Bank of America reported combined equities trading revenues of USD 19.3 billion, 72% higher YoY and well above expectations. The strength was driven by heightened volatility in AI-related stocks, elevated trading activity across Asia and major equity market events such as the SpaceX IPO. Investment banking activity was similarly robust, with the blockbuster SpaceX listing alone generating an estimated USD 500 million in fees across Wall Street. Even excluding SpaceX, US IPO proceeds more than doubled YoY according to Moody's Ratings, reflecting a broader pickup in the listings market. Banks also benefited from stronger capital raising activity more broadly, as hyperscalers increasingly turned to the equity and debt markets to finance AI infrastructure spending.

Beyond capital markets, underlying banking fundamentals also remained healthy. Net interest income and loan growth were resilient, supported by continued consumer spending and declining loan delinquency rates despite higher energy prices.

Looking ahead, executives remain cautiously optimistic. Goldman Sachs CEO David Solomon said the AI infrastructure buildout remains in its early stages and should continue to support strategic activity, financing and capital formation across markets. Meanwhile, JPMorgan CEO Jamie Dimon struck a more measured tone, describing current market conditions as "close to as good as it gets" while cautioning that it remains uncertain how long such favourable conditions will persist.

Implications for investors

Overall, earnings growth has been very strong so far in 2Q26, and encouragingly broad-based rather than narrowly concentrated. Even excluding Alphabet and Amazon, both of which benefited from one-off gains this quarter, blended S&P 500 earnings growth would still stand at a robust 28.8%, marking the second consecutive quarter of YoY earnings growth above 20%.

In light of the stronger-than-expected second-quarter earnings season and sustained earnings momentum, we are raising our S&P 500 earnings forecasts. Applying a fair P/E multiple of 20x to our 2028 earnings estimates, we derive a target of 9,140 for the S&P 500, implying 18.3% upside from its 5 August 2026 closing level of 7,723.55.

That said, we remain underweight US equities at the index level, as we continue to see more attractive opportunities in Asia, where earnings growth prospects are stronger and valuations remain considerably more attractive. The S&P 500 currently trades at an 84% premium to the MSCI Asia ex-Japan Index, well above its 10-year average premium of 44%.

Figure 2: US equities are trading at a steep premium relative to Asia equities

Within US equities, we remain neutral on semiconductors. Demand for compute continues to outstrip available supply, with hyperscalers — Meta, Alphabet, Amazon and Microsoft — projected to spend USD 760 billion on capex in 2026, representing an 85% increase from 2025, while signalling further spending growth into 2027. However, as rising investment begins to weigh more heavily on hyperscaler free cash flow, the pace of spending could moderate from 2028 onwards. We believe investors should maintain diversified AI exposure rather than concentrate solely on semiconductors. Within the sector, we continue to favour Asian semiconductor names over their US counterparts due to more attractive valuations.

We are more positive on internet companies, where AI monetisation is becoming increasingly tangible. Cloud order backlog growth remains strong across Amazon, Alphabet and Microsoft, while AI adoption continues to accelerate. Combined cloud order backlog across the three companies grew 149% YoY and 16.2% quarter-on-quarter, signalling durable, multi-year demand already under contract rather than strength confined to the current quarter. Meanwhile, Microsoft 365 Copilot surpassed 30 million paid seats, up from 20 million in 1Q26, while Meta has begun monetising AI directly through Meta One subscriptions and paid access to Business AI agents. These developments should continue to support earnings growth over the coming years. Over the longer term, internet companies should also be key beneficiaries as hyperscaler capital expenditure eventually peaks and AI infrastructure investments increasingly translate into higher-margin software and services revenue.

Finally, while resilient consumer spending continues to support the broader economy, we remain cautious on consumer companies. Spending among lower-income households remains under pressure — Procter & Gamble CFO Andre Schulten observed that lower-income consumers "are really managing pay cheque to pay cheque" — even as strength in equity markets has helped sustain spending among wealthier households. We would prefer to see stronger earnings growth from consumer companies, together with clearer evidence of moderating inflation, before turning more constructive on the sector.

Table 1: Projections for the S&P 500 Index

S&P 500 Index	2025	2026E	2027E	2028E
Earnings Per Share (EPS)	268.7	358.7	404.1	457.0
Earnings Growth YoY	12.5%	33.5%	12.6%	13.1%
PE Ratio (X)	25.5	21.5	19.1	16.9
Target Price (based on a fair PE of 20X)				9,140
Upside Potential				18.3%
Source: Bloomberg Finance L.P., iFAST estimates. Data as of 5 August 2026

Figure 3: Share prices are driven by earnings growth in the long run

Table 2: Recommended products

Sector/Style	Recommended Products
Digital Economy	•      Fidelity Global Technology A-ACC-USD •      Eastspring Investments Unit Trusts - Global Technology SGD •      Invesco NASDAQ Internet ETF (NASDAQ: PNQI) •      VanEck Semiconductor ETF (NASDAQ: SMH)
Quality	•      JPMorgan U.S. Quality Factor ETF (NYSE: JQUA)

Declaration:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.