Strong earnings ease AI-concentration worries in U.S. stock rally

The second-quarter earnings season has delivered results that challenge a recurring concern among investors: that the recent stock market rally rests too narrowly on artificial intelligence spending by a handful of mega-cap technology companies. With about 86% of S&P 500 reporters beating estimates and the index on course for its seventh consecutive quarter of double-digit earnings growth, the gains appear more distributed across the market than headline figures suggest.

Earnings growth has been pronounced across multiple sectors. Energy earnings jumped more than 147%, driven partly by higher oil prices linked to the Iran war, with Exxon Mobil's profit more than doubling to its highest since 2022 and Chevron reporting record quarterly earnings. Communication services, consumer discretionary, and technology sectors all posted substantial gains (around 117%, 92%, and 70% respectively). Even companies outside pure AI benefited: Caterpillar increased total sales and revenue by 24%, aided by demand for generators and construction equipment used in data centres. Amazon shares jumped 15% in one session after cloud-computing sales accelerated, and Microsoft added a record $450 billion in market value following results that eased concerns about returns from data centre and chip spending.

Yet concentration persists. Alphabet and Amazon alone accounted for about 71% of the increase in blended S&P 500 earnings since July—a fact that underscores how narrowly the earnings engine still runs, even as breadth improves. Valuations also remain elevated: the S&P 500 traded at around 28 times trailing earnings last week, below May's level above 29 but well over its 10-year average of 22.5, suggesting the market has priced in continued strong performance.