US Companies Post Best Earnings Growth in a Decade as AI Drives Record Q1 Results

US companies delivered the strongest earnings growth in a decade during the first quarter of 2026, with 83% of S&P 500 constituents beating analyst forecasts and full-year earnings growth projections revised to 28.6%, up from 14.4% in April.

What Happened

The S&P 500 closed at a record 7,501 on 14 May, completing six consecutive weeks of gains, the longest winning streak since October 2024. The PHLX Semiconductor index rose 2.5% during the strongest earnings days, with AI-related capital spending emerging as the primary driver of corporate profit growth.

Meta Platforms and Microsoft were central to the results. Both reported revenue and profit beats, though their capital expenditure guidance prompted an initial selloff. Meta raised its 2026 capex to a range of $125 billion to $145 billion. Microsoft guided for comparably elevated AI infrastructure investment. In both cases, investors reversed their initial negative reaction after absorbing the underlying earnings strength.

Annual earnings growth for the S&P 500 was revised from 14.4% to 28.6%, the largest single-quarter upward revision in over a decade.

Why It Matters for Investors

The scale of the revision has direct implications for equity portfolio weights. Three factors stand out:

• Technology concentration is growing: AI-adjacent companies have outperformed materially, increasing the effective weighting of the technology sector within diversified index portfolios.
• Breadth is uneven: The 83% beat rate covers the headline, but profit growth is concentrated in AI-adjacent sectors. Consumer-facing companies show signs of strain as oil prices above $100 and persistent inflation weigh on household spending.
• Rebalancing pressure is building: Six consecutive weekly gains historically prompt allocation reviews among investors managing target-weight portfolios.

What to Watch

The next test is Q2 guidance. Meta shares fell roughly 9% immediately after its results despite the earnings beat, a signal that markets are scrutinising AI capital deployment as closely as reported profits. Sustaining a 28.6% earnings growth rate in Q2 would require continued AI revenue momentum, which remains visible in cloud and advertising but is harder to project in hardware.

Berkshire Hathaway's Q1 portfolio filing, submitted on 15 May, offers a notable counterpoint. The conglomerate cut its equity positions from approximately 40 to 29 and reduced total holdings from around $274 billion to $263 billion, exiting Amazon, UnitedHealth, and Domino's. Warren Buffett, now chairman emeritus, described markets as "a casino" at Berkshire's 2 May annual meeting, with specific concern about single-day options and prediction markets.

The Federal Reserve's April meeting minutes, due Wednesday, are expected to address the inflation interaction with elevated technology valuations.

The Longer View

The 2026 earnings season has confirmed AI as a structural driver of corporate profits, not a speculative theme. For portfolio managers, the open question is whether AI capital expenditure at current scales will generate sufficient returns to sustain this earnings trajectory beyond 2026. Bond yields at 4.60% and oil near $105 constrain the multiple expansion that drove the first half of the rally.