US 1Q26 earnings review: Strong earnings growth but selectivity still matters

• S&P 500 earnings grew 28.8% year-on-year, more than double the 13.1% consensus expectation at the start of the earnings season.

• Earnings growth was led by Information Technology (+54.8%), Communication Services (+48.9%), and Materials (+42.5%), while Health Care (–3.1%) and Energy (+0.6%) lagged.

• We revise our S&P 500 earnings estimates upward, reflecting stronger-than-expected 1Q26 results and sustained earnings momentum ahead, particularly in the technology sector.

• That said, we remain underweight US equities on an index level and instead favour the digital economy.  We see more attractive opportunities in Asian markets such as Taiwan and South Korea that offer strong earnings growth prospects at more compelling valuations.

• We also remain cautious on Consumer Discretionary amid a K-shaped economic backdrop and continue to favour the digital economy and high-quality companies with resilient earnings visibility.

The S&P 500 first-quarter 2026 earnings season has effectively concluded, with 499 of the 500 index constituents having reported results. Despite a sharp increase in energy costs during the quarter, corporate profitability remained exceptionally strong.

S&P 500 earnings grew 28.8% year-on-year (YoY), marking the strongest earnings growth rate since the fourth quarter of 2021, when earnings rose 32.0%. Earnings results also exceeded expectations by a wide margin. Approximately 85% of companies reported positive earnings per share (EPS) surprises, well above the 10-year average of 76%. In aggregate, reported earnings were 16.4% above consensus estimates, more than double the 10-year average earnings surprise of 7.1%.

At the sector level, 10 of the 11 sectors delivered positive earnings surprises, with the energy sector being the only exception. While the healthcare sector also exceeded earnings expectations, it was the only sector to report a YoY decline in earnings.

Figure 1: US companies delivered excellent results in the first quarter

Drivers of earnings growth

Information Technology

The Information Technology (IT) sector delivered the strongest earnings growth among all eleven sectors in the first quarter, with earnings increasing 54.8% YoY. This performance was primarily driven by the Semiconductors & Semiconductor Equipment industry, which reported earnings growth of 91.5%, supported by continued heavy investment in AI infrastructure by hyperscalers and other enterprises.

Given their significant weightings within the index, the largest contributors to sector earnings growth were NVIDIA (+94.8% YoY) and Micron (+682.1%). NVIDIA’s revenue surged 85% YoY, driven by a 92% increase in Data Centre revenue, with CEO Jensen Huang describing demand for its products as “parabolic” amid the rise of agentic AI. The company guided for second-quarter revenue of USD 91.0 billion, ahead of consensus expectations of USD 87.3 billion.   

Micron’s revenue nearly tripled to USD 23.9 billion from USD 8.1 billion in 1Q25, driven by robust AI-related memory demand that continued to outpace supply, supporting higher HBM pricing. The company also issued strong guidance for fiscal third-quarter revenue of USD 33.5 billion, with management expecting supply tightness across DRAM and NAND markets to persist beyond 2026.

Despite concerns that AI could disrupt traditional software business models, the software industry continued to post robust earnings growth of 23.8%. Strong results were reported by companies such as Salesforce (+50.4%), and CrowdStrike (+50.7%).  Salesforce delivered revenue and earnings beat in the first quarter while maintaining its FY27 revenue guidance. While still a small part of its business, Saleforce's AI-related revenue shows notable growth, with Agentforce annual recurring revenue (ARR) up 205%

Meanwhile, CrowdStrike also delivered a beat-and-raise quarter, with full-year guidance revised higher. This can be attributed to rising security complexity from AI adoption, which is accelerating the need for cybersecurity solutions.

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Communication Services

The Communication Services sector's strong earnings growth was largely driven by Alphabet and Meta.

Alphabet reported earnings growth of 81.9%, supported by 63% YoY growth in Google Cloud revenue and 19% growth in Google Search & Other revenue. Looking ahead, investors can expect growing revenue contribution from the company’s TPU sales, which are seeing “massive interest,” alongside deeper enterprise adoption of its Gemini models. Google Search is also likely to continue performing strongly despite rising competition from AI chatbots, as the company actively embeds AI into Search to enhance user engagement while also reinventing search advertising through new AI-native ad formats designed for agentic and conversational experiences.

Similarly, Meta delivered earnings growth of 62.4%, as advertising revenue from its Family of Apps segment increased 33% YoY, benefiting from the company's extensive use of AI to improve the effectiveness of its advertising platform. In response to investor pressure to better monetise its significant AI capex, the company has introduced premium subscription plans across Instagram, Facebook, and WhatsApp, and is also testing a paid AI subscription service in select markets including Singapore, Guatemala, and Bolivia. This could support additional revenue streams going forward.

Taken together, the sector's reliance on these two companies was evident, as Communication Services earnings would have declined by 4.1% YoY if Alphabet and Meta were excluded.

Several entertainment companies reported steep declines in earnings due to significant one-off charges. Warner Bros. Discovery's earnings declined 550.0%, primarily reflecting a USD 2.8 billion termination fee paid to Netflix following its upcoming merger with Paramount Skydance, as well as USD 1.3 billion of restructuring and merger-related expenses. Live Nation Entertainment reported a 478.1% decline in earnings after recording a USD 450 million antitrust legal charge.

Looking ahead, we expect Alphabet and Meta to remain the primary drivers of earnings growth for the sector as they are the key beneficiaries of AI-related growth.

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Materials

The Materials sector delivered the third-highest earnings growth among all eleven sectors, with earnings increasing 42.5% YoY. This strong performance was largely driven by the Metals & Mining industry, which reported earnings growth of 137.0%. Excluding this industry, the sector's earnings growth rate would have fallen to a more modest 14.6%.

The industry's performance was supported by a sharp YoY increase in commodity prices. Freeport-McMoRan, the world's largest publicly traded copper producer, benefited from higher copper prices driven by growing demand from AI data centres and electrification initiatives, resulting in earnings growth of 137.5%. Similarly, Newmont Corporation, the world’s largest gold mining company, benefited from rising gold prices, supported by increased central bank demand and heightened safe-haven flows amid geopolitical uncertainty, delivering earnings growth of 132.0%.

Steel producers Nucor Corporation and Steel Dynamics also reported strong results, benefiting from tariff protection on imported steel and aluminium as well as demand supported by reshoring initiatives and infrastructure spending. The companies posted earnings growth of 320.0% and 93.1%, respectively.

Looking ahead, the Materials sector could continue to see strong earnings growth from higher commodity prices due to structural demand from reshoring trends and data centre expansion.

Consumer Discretionary

Despite ongoing consumer headwinds in the US economy, the Consumer Discretionary sector delivered the fourth-highest earnings growth among all eleven sectors, at 40.8% YoY. However, this outperformance was largely driven by Amazon, which is not a pure-play consumer discretionary company given the scale of its cloud business. The company reported earnings growth of 74.5% in the first quarter, supported by broad-based strength across its cloud, chips, e-commerce, and advertising segments.

Excluding Amazon, sector earnings growth would have been significantly lower at 16.6%, though still a respectable pace of growth. This underlying growth was primarily driven by the Automobiles & Components industry, which reported earnings growth of 72.4%.

Within this segment, Tesla posted earnings growth of 51.9%, while Ford Motor Company and General Motors reported growth of 371.4% and 33.1%, respectively. However, it is important to note that both Ford and General Motors benefited from one-off tariff refunds following the US Supreme Court ruling that deemed Trump’s International Emergency Economic Powers Act (IEEPA) tariffs illegal, amounting to USD 1.3 billion for Ford and USD 500 million for General Motors.

In contrast, the Consumer Durables & Apparel industry recorded a 20.7% decline in earnings, as weakness in housing-related activity and discretionary spending weighed on results. Homebuilder Lennar Corporation, for instance, reported negative earnings growth of -56.5%, as its CEO Stuart Millar cited stubborn headwinds including “persistently elevated mortgage rates, constrained affordability, and cautious consumer sentiment, exacerbated by geopolitical uncertainty creating a resurgent inflation reading of 4.2% driven by higher energy price”.  

As such, we remain cautious on the Consumer Discretionary sector, given its sensitivity to a potential slowdown in consumer spending in an environment of elevated inflation.

Related article:

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Detractors of earnings growth

Health Care

The Health Care sector reported better-than-expected earnings growth of –3.1%, compared to analyst expectations of –8.3%. Despite this beat, it remained the only S&P 500 sector to record negative earnings growth, reflecting ongoing drug pricing headwinds from Most Favoured Nation (MFN) pricing and the Inflation Reduction Act (IRA). The sector also faces a looming patent cliff, which could erode approximately USD 300 billion in revenue by 2030, with several companies already experiencing the loss of patent protection on key drugs.

Within the sector, the Health Care Equipment & Services industry delivered positive earnings growth of 5.9%. In contrast, the Pharmaceuticals, Biotechnology & Life Sciences industry reported a decline of 10.1%, primarily driven by a 20.9% contraction in the pharmaceuticals segment.

Among major companies, Pfizer reported earnings growth of –18.5%, reflecting continued contraction in its COVID-19 vaccine franchise. Bristol Myers Squibb similarly recorded a 12.2% decline in earnings, as legacy drugs faced increasing generic competition and the company lost diabetes royalty income from AstraZeneca.

Among healthcare equities, we recommend a selective approach, favouring companies with no near-term patent expirations, those with diversified product portfolios capable of offsetting upcoming loss-of-exclusivity headwinds, and firms with strong balance sheets to replenish their pipelines through acquisitions.

Energy

The Energy sector reported essentially flat earnings growth of 0.6% in 1Q26, despite a sharp surge in crude oil prices following the US–Iran conflict. According to FactSet, although oil prices spiked by 77% during the quarter (rising from USD 57.42 to USD 101.38), the average oil price for Q1 2026 (USD 72.67) was only 1.8% higher than the Q1 2025 average of USD 71.38. As a result, the impact of higher oil prices on revenues and profits has yet to fully flow through to earnings.

Exxon Mobil and Chevron Corporation, which together account for approximately 46% of the sector, reported earnings declines of 34.1% and 35.3%, respectively, dragging overall sector growth lower. Earnings for both companies were suppressed by unrealised derivative losses, as the rapid spike in oil prices forced them to mark their hedging positions to market before the underlying physical oil could be delivered and sold.

Looking ahead, earnings momentum is expected to strengthen significantly. Analysts project Energy sector earnings growth of 121.9% in 2Q, the highest among all eleven sectors, supported in part by the recent spike in oil prices following the conflict. As of 12 June, the average oil price in 2Q 2026 to date (USD 96.87) is 52% higher than the Q2 2025 average of USD 63.68, which should provide a strong tailwind to earnings for upstream energy producers in the coming quarters.

Strong earnings growth, but elevated valuations

We revise our earnings estimates for the S&P 500 index upward, reflecting stronger-than-expected 1Q26 results and sustained momentum in earnings growth over the coming quarters, particularly in tech and tech adjacent sectors which accounts for nearly half the index. Earnings for these companies are expected to grow by approximately 43% in 2026.

Hyperscalers are expected to continue benefiting from robust cloud revenue growth, while elevated capital expenditure on AI infrastructure should provide a continued tailwind to earnings across the semiconductor ecosystem. Collectively, hyperscalers—Amazon, Meta Platforms, Microsoft, and Alphabet—are projected to invest approximately USD 725 billion in capital expenditures this year, representing a 77% increase from 2025.

We also see scope for further valuation re-rating in the software industry, as earlier concerns around AI-driven disruption have largely proven overstated, while valuations have yet to fully reflect the sector’s earnings resilience and growth.

The Materials sector is also likely to continue delivering strong earnings growth, as commodities such as copper and aluminium are essential inputs for the ongoing expansion of data centre infrastructure.

Applying a fair P/E multiple of 20x to our 2028 earnings forecasts, we derive a target level of 8,750 for the S&P 500, implying approximately 16.5% upside from the 16 June 2026 closing level.

That said, despite expectations of strong earnings growth moving forward, we remain underweight US equities at the index level, as we see more attractive opportunities in Asian markets such as Taiwan and South Korea which offer strong earnings growth prospects at more compelling valuations. For reference, the MSCI Asia ex Japan Index is currently trading at around 12.4x forward 12-month earnings, representing a nearly 40% discount to the US market, which trades at 20.3x.

At the same time, we remain cautious on Consumer Discretionary stocks amid a K-shaped economy in the US, where higher-income households continue to spend while lower- and middle-income consumers pull back.

We continue to favour the digital economy, where earnings growth is structurally supported by long-term AI adoption rather than cyclical US consumer strength, and is unlikely to be materially affected by the final outcome of the US-Iran conflict. More broadly, we continue to favour high-quality companies with strong balance sheets, resilient earnings, and high returns on equity, as these characteristics position them better to withstand near-term macro volatility.

Table 1: Projections for the S&P 500 Index

S&P 500 Index	2025	2026E	2027E	2028E
Earnings Per Share (EPS)	269.2	340.4	391.0	437.5
Earnings Growth YoY	12.5%	26.4%	14.9%	11.9%
PE Ratio (X)	25.4	22.1	19.2	17.2
Target Price (based on a fair PE of 20X)				8,750
Upside Potential				16.5%
Source: Bloomberg Finance L.P., iFAST estimates. Data as of 16 June 2026

Figure 2: 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.