Key Takeaways
- S&P 500 earnings growth will slow from ~30% in 2026 to high-teens in 2027.
- AI-related companies will see earnings growth drop from 60% to 24%.
- Three temporary boosts will fade: AI capex, chip margins, and other income.
- Goldman sees an 8 percentage point drag from lost “other income.”
- Market breadth remains narrow at 36% of stocks outperforming.
- Tech, healthcare, financials, industrials, and utilities can still boom.
- Top stocks to watch include AVGO, NVDA, MU, LLY, GILD, ABBV, DHR, TMO, GEV, ETN, and PWR.
- Q1 2027 earnings reports will define how the market reprices this slowdown.
Quick Answer for Visitors
| Question | Answer |
|---|---|
| Will S&P 500 earnings growth slow? | Yes. Growth falls from ~30% in 2026 to high-teens in 2027. |
| What causes the 2027 cut? | Removal of “other income,” slower AI capex, and fading chip margins. |
| How fast will AI earnings grow? | AI-related earnings growth drops from 60% to 24%. |
| Is market breadth weak? | Yes. Only 36% of stocks outperform. |
| Which sectors can boom? | Tech, healthcare, financials, industrials, and utilities. |
| Which stocks can boom? | AVGO, NVDA, MU, LLY, GILD, ABBV, DHR, TMO, GEV, ETN, PWR. |
The Big Picture
Wall Street sees a major slowdown coming.
S&P 500 earnings growth will fall sharply from 2026 to 2027.
This shift will dominate Q1 2027 market action.
Two forces drive this story.
First, Jefferies sees 35% earnings growth for 2026. Consensus sits at 29%.
Second, Goldman warns of an 8 percentage point drag on 2027 earnings growth. The removal of “other income” causes this drag.
The AI capex boom will not sustain earnings much longer.
2026 vs. 2027: The Numbers
| Metric | 2026 | 2027 | Source |
|---|---|---|---|
| S&P 500 EPS growth (Jefferies) | 35% | ~20.8% | – |
| S&P 500 EPS growth (Goldman) | ~30% | 11% | – |
| Consensus EPS growth | 29% | ~15% | – |
| AI-related company earnings growth | 60% | 24% | – |
| “Other income” contribution | $150B+ | Removed | – |
The S&P 500 EPS will rise to roughly $415 in 2027 under Goldman’s base case. Jefferies sees $450 under its more bullish view.
Why Q1 2027 Matters for Investors
Q1 2027 earnings reports will show the full impact of these headwinds.
Bank of America projects earnings growth will slow below 20% by Q1 2027. The bank sees mid-teens growth for the full year.
FactSet data shows Q1 2027 growth slowing to 18.2%.
This deceleration will force investors to reprice stocks.
The market has already priced in strong 2026 results.
The Q1 2027 reporting season will reveal whether companies can sustain double-digit growth. They must do so without the temporary boosts that inflated 2026 numbers.
Three Temporary Boosts That Will Fade
Goldman identifies three factors that artificially inflated 2026 earnings.
All three will weaken in 2027.
1. AI Capex Boom
The AI investment boom accounted for nearly half of S&P 500 earnings growth in 2026.
Mega-cap hyperscalers spent $800 billion on capex in 2026. That is up 94% from 2025.
This tailwind will fade.
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Hyperscaler capex growth will drop from nearly 100% in 2026 to 54% in 2027. It will then fall to 12% in 2028.
The earnings boost from AI capex will shift from an 11 percentage point gain in 2026 to a marginal drag by 2028.
2. Semiconductor Margin Expansion
Memory chip firms enjoyed gross margins near 80% in 2026. That is more than double their historical average.
This margin expansion drove about one-quarter of semiconductor earnings growth.
Goldman warns that if chip gross margins fall from 70% to their 15-year average of 55%, S&P 500 earnings would drop by roughly 10%.
Supply will remain tight through 2027. But margin expansion will slow.
3. “Other Income” from Private Investments
Mega-cap tech companies generated over $150 billion in “other income” from private investment gains in Q2 2026 alone.
This accounted for 12% of S&P 500 EPS.
Goldman expects this contribution to diminish significantly in 2027.
The complete removal would create an 8 percentage point drag on year-over-year growth.
Excluding these non-core gains, the underlying 2027 EPS growth rate would be closer to 18%.
AI Earnings Slowdown
AI-related companies represent about 46% of the S&P 500.
Their earnings will grow 60% in 2026.
That growth will slow to 24% in 2027.
This slowdown matters because AI stocks drive a huge share of index returns.
| Company Group | 2026 Growth | 2027 Growth |
|---|---|---|
| AI-related companies (46% of index) | 60% | 24% |
| Magnificent Seven | 45% | Lower |
| Rest of S&P 500 | 24% | Double digits |
The “Magnificent Seven” will deliver roughly 45% earnings growth in 2026. The rest of the index will post around 24% growth.
This gap will narrow in 2027. But AI companies will still lead.
Market Breadth Remains Weak
Market breadth measures how many stocks outperform the index.
Only about 36% of S&P 500 stocks outperformed the index over the 12 months through August 2026.
The long-term average sits near 47%.
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This narrow breadth means a small number of stocks drive most returns.
When earnings growth slows, these leaders will face more pressure.
A broader earnings recovery could improve breadth. But that depends on non-tech sectors picking up the slack.
Sectors That Can Boom in 2027
Not every sector will slow down.
Several areas will still deliver strong earnings growth.
Information Technology Still Leads
Tech remains the biggest earnings driver.
The sector will post 32.5% earnings growth in 2027, according to First Trust data.
Semiconductors lead the way.
State Street notes that tech maintains strong earnings visibility into 2027 across underlying industries. Semiconductors lead this group.
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AI-related tech spending will keep growing.
The tech spending cycle has only run for two years. History shows these cycles last a decade with roughly 20% compound annual growth.
Semiconductor valuations remain low relative to growth.
Healthcare Is the Big Rebound Story
Healthcare will stage a major comeback in 2027.
The sector will swing from a 1% earnings decline in 2026 to over 22% growth in 2027, per JPMorgan.
First Trust data shows healthcare earnings growth hitting 19.2% in 2027.
The sector trades at a deep discount to the market.
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Investors have ignored healthcare for years while chasing AI names.
JPMorgan calls it “one of the market’s most durable growth sectors.”
Improving managed care fundamentals and biopharma innovation drive this rebound.
Financials Offer Steady Growth
Financials will grow earnings 11.2% in 2027, per First Trust.
Loan growth hit 6.7% year-over-year in Q1 2026. That is up from 2% lows in early 2024.
Higher rates boost net interest margins for big banks.
JPMorgan lists financials among its four sectors primed for durable growth through 2027.
Bank cash flow returns have climbed over 300 basis points in two years.
Excess capital may reach $300 billion.
Industrials Ride the Capex Wave
Industrials will deliver 16.6% earnings growth in 2027.
Over 45% of S&P 500 companies plan to increase capex by more than 10% next year.
Data center capacity will grow 115% year-over-year.
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AI infrastructure, defense systems, and power grid upgrades drive structural demand.
JPMorgan includes industrials in its top four growth sectors.
Utilities and Energy Infrastructure
Utilities will grow earnings 9.4% in 2027.
Power demand from AI data centers will keep rising.
JPMorgan groups utilities with energy infrastructure as a combined growth category.
Sector Earnings Growth Summary
| Sector | 2026 Earnings Growth | 2027 Earnings Growth | Key Driver |
|---|---|---|---|
| Information Technology | 56.8% | 32.5% | Semiconductors, AI capex |
| Health Care | 1.8% | 19.2% | Biopharma, managed care rebound |
| Industrials | 12.3% | 16.6% | Infrastructure, reshoring |
| Financials | 9.3% | 11.2% | Loan growth, higher margins |
| Consumer Discretionary | 14.1% | 14.5% | Stable spending |
| Utilities | 12.2% | 9.4% | AI power demand |
| Energy | 69.8% | -8.2% | Oil price decline |
| Materials | 39.9% | 10.8% | Slower commodity cycle |
Specific Stocks to Watch
AI Chip Leaders
Broadcom (AVGO) expects AI semiconductor revenue to double in 2027. Revenue will reach $115 billion. The stock badly underperformed in 2026. It rose less than 5%. That sets up a potential rebound.
Nvidia (NVDA) guides for 70% revenue growth in 2027. Revenue hit $96.2 billion in fiscal Q2 2027. That is up 106% year-over-year.
Micron (MU) leads in AI memory chips. The company crushed earnings expectations and delivered record profits. Analysts expect Micron to outperform in 2027.
Healthcare Picks
JPMorgan recommends Eli Lilly (LLY), Gilead Sciences (GILD), and AbbVie (ABBV) in biopharma.
In medical tech, the bank favors Danaher (DHR) and Thermo Fisher Scientific (TMO).
These stocks trade at attractive valuations. Improving financial fundamentals support the bullish case.
Infrastructure and Power Stocks
GE Vernova (GEV) will grow revenue 14% in 2027. Operating margins will expand to 13.5%.
Eaton (ETN) will post 9% revenue growth. Operating margins will hit 21.5%.
Quanta Services (PWR) will grow revenue 11.2% in 2027.
These companies supply power equipment and grid infrastructure for AI data centers.
Stock Summary
| Stock | Ticker | Sector | 2027 Catalyst |
|---|---|---|---|
| Broadcom | AVGO | AI Chips | AI revenue to double |
| Nvidia | NVDA | AI Chips | 70% revenue growth |
| Micron | MU | AI Memory | Record AI memory demand |
| Eli Lilly | LLY | Biopharma | GLP-1 drug growth |
| Gilead Sciences | GILD | Biopharma | Pipeline expansion |
| AbbVie | ABBV | Biopharma | M&A activity |
| Danaher | DHR | Med Tech | Valuation recovery |
| Thermo Fisher | TMO | Life Sciences | Biopharma R&D spending |
| GE Vernova | GEV | Power Equipment | Data center power demand |
| Eaton | ETN | Electrical Equipment | Grid infrastructure |
| Quanta Services | PWR | Infrastructure | Power grid upgrades |
How to Position for 2027
Investors should look beyond the mega-cap tech names.
The earnings recovery will spread to healthcare, financials, and industrials.
Market breadth will improve as these sectors pick up speed.
The key risks remain.
A deeper AI capex slowdown would hurt tech.
Drug pricing reforms could pressure healthcare.
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Higher rates for longer would slow financials.
But current valuations already reflect many of these concerns.
The Q1 2027 earnings season will show which sectors deliver.
Companies that beat estimates will win.
Those that miss will face sharp selloffs.
Positioning ahead of those reports matters most.
Disclaimer:
This article is for information only. It does not offer financial advice. Always do your own research.
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