JPMorgan Expects Q3 Earnings Growth to Broaden Beyond AI Across US and European Equities

JPMorgan strategists anticipate that third-quarter corporate earnings will offer support to equity markets, with profit growth extending beyond artificial intelligence (AI)-related companies. This broadened growth is expected across a wider range of sectors in both US and European equities, according to a team led by Mislav Matejka.

Broader Profit Growth Beyond Major Tech and AI

For much of the past year, US corporate earnings—particularly in the S&P 500—have been dominated by large technology companies leading the AI boom. However, consensus estimates now point to a shift in where profit growth comes from. According to IBES, earnings per share (EPS) for the S&P 500 are expected to rise by 24% year-over-year in the third quarter. Estimates from FactSet and LSEG put growth at 30%, reflecting adjustments for a one-off tax charge at Meta Platforms (NASDAQ:META).

When the impact of Nvidia (NASDAQ:NVDA) and Micron Technology (NASDAQ:MU) is excluded, expected EPS growth declines to 15%. The median S&P 500 company is projected to report an 8% increase, reflecting more moderate improvements beneath the headline figures. This suggests that while top-line numbers remain strong, broader market earnings are less demanding than the index growth rates suggest.

In Europe, consensus forecasts point to a 19% increase in corporate earnings, falling to 11% growth when energy companies are excluded. Median earnings growth is estimated at 9%, with both the S&P 500 and Stoxx 600 showing median revenue growth of 7%.

Key Trends and Sector Performance

JPMorgan sees these developments as evidence of profit growth becoming less concentrated among a handful of companies. The strategists noted improvements in global purchasing managers’ indices during the third quarter, with several reaching multi-year highs, and JPMorgan’s proprietary earnings indicator continued to rise. This indicator typically leads reported earnings by about two quarters, providing a basis for their expectations of continued earnings expansion over the next two reporting periods.

According to JPMorgan, the proportion of global companies experiencing accelerating earnings growth is approaching a record level. While artificial intelligence remains a significant contributor to US corporate earnings, profit growth is becoming more widely distributed across multiple industries.

European Margins, Sector Views, and Related Risks

In Europe, JPMorgan expects operating margin expansion to contribute to earnings growth. The bank forecasts that earnings before interest and taxes (EBIT) as a percentage of sales will reach 14.4% in 2026, about 250 basis points above the 2019 level. Most European sectors are expected to record margin improvement, though consumer staples, automotive companies, and software businesses are exceptions.

JPMorgan identified additional factors affecting performance. Currency movements, particularly a weaker euro, could benefit European exporters. Energy companies may report results above market expectations, while mining companies face potential downside risks. The bank highlighted exposure to China and consumer spending as areas where earnings could remain subdued, and noted that companies may emphasize higher energy costs in their financial updates.

JPMorgan maintains a positive outlook on European semiconductor manufacturers, banks, chemical companies, and industrial businesses. In recent weeks, European banking shares experienced valuation declines exceeding 10%, and French equities saw more than a 15% reduction, though earnings for these groups have remained relatively stable, according to the bank. Approximately 75% of revenue generated by companies in France’s CAC 40 index comes from markets outside France, highlighting the index’s significant international exposure.

Market Implications and Outlook

JPMorgan also examined the recent increase in bond yields, suggesting that the move may be approaching an oversold condition. The strategists said that stabilization in yields during the earnings reporting period could provide conditions for equity markets to advance toward the end of the year, accompanied by greater demand for risk assets. However, they noted this remains a conditional view.