Author: Fiona Craig

The latest U.S. earnings season is delivering stronger-than-expected profit growth, potentially giving the S&P 500 enough fundamental support to withstand continued turbulence across artificial intelligence stocks, according to Goldman Sachs.

Rather than viewing the recent AI sell-off as evidence that the investment cycle has ended, the bank believes the correction resembles the consolidation phases that have historically followed exceptionally strong momentum rallies.

Goldman Sees Familiar Pattern Behind AI Correction

“AI stock volatility during the past week has continued to follow the typical historical pattern following sharp Momentum rallies,” strategists led by Ben Snider said.

Periods of unusually powerful momentum have historically been followed by temporary drawdowns as investors take profits and reduce leverage.

Goldman believes recent deleveraging, together with historical precedent, “suggest an improved outlook going forward,” although earnings performance will ultimately determine whether AI stocks can resume their advance.

S&P 500 Companies Deliver Strong Profit Growth

With 61% of the index having reported by July 31, approximately 64% of S&P 500 companies had exceeded consensus EPS forecasts by at least one standard deviation.

Underlying earnings growth is running at roughly 26% year-over-year after stripping out “other income” generated by appreciating equity investments at mega-cap technology companies. Including those gains increases headline EPS growth to 45%.

Meanwhile, the median S&P 500 company is delivering approximately 12% earnings growth, exceeding the 9% anticipated before reporting season began.

AI infrastructure companies are responsible for roughly one-third of the increase.

Strong Results No Longer Guarantee Technology Stock Gains

Investors have nevertheless responded cautiously to positive technology results.

Goldman observed that “the reaction to earnings beats has been lackluster for Technology, Media, and Telecommunications (TMT) stocks,” despite the fact that “the equal-weight S&P 500 has continued to climb alongside steady EPS growth.”

Technology, media and telecommunications companies beating expectations subsequently underperformed the benchmark by a median 192 basis points, while earnings winners elsewhere generated 75 basis points of median outperformance.

The figures suggest expectations surrounding AI-related companies have become sufficiently elevated that simply beating forecasts may no longer be enough to drive shares higher.

AI Capital Spending Heads Towards $1 Trillion

Investment in artificial intelligence infrastructure continues to accelerate despite market concerns.

Hyperscalers collectively spent $182 billion on capital expenditure during the quarter while producing only $5 billion of free cash flow and raising $101 billion through debt and equity markets.

Goldman said the results “signaled rising capex spending and increasing need for external financing but also growing evidence of return on AI investments.”

Analysts now anticipate AI-related capital expenditure exceeding $1 trillion in 2027, more than $100 billion above previous projections.

Cloud revenue growth reaching 48% during the quarter provides an important counterargument to concerns about excessive investment, suggesting demand continues to expand alongside spending.

Broader Earnings Growth Strengthens Market Foundations

Perhaps the most encouraging development for the wider market is that earnings strength is becoming less dependent on technology companies.

The continued advance of the equal-weight S&P 500, alongside positive earnings revisions across most industries, suggests corporate profitability remains healthy across a broader portion of the economy.

Goldman nevertheless cautions that “the impact of rising input costs on margins remains a key risk.”

While AI stocks could therefore remain volatile, robust earnings growth across the wider S&P 500 may provide enough fundamental support to prevent turbulence in technology shares from developing into a broader market downturn.

Citi remains constructive on the memory semiconductor sector, arguing that the recent correction in leading chipmakers has created an attractive entry point for investors. The bank believes the current AI-driven memory expansion is still in its early stages and has the potential to outperform the industry’s last major growth cycle.

Market Pullback Has Not Changed the Long-Term Story

After a powerful rally, shares of Micron (NASDAQ:MU), Samsung Electronics Co Ltd (USOTC:SSNHZ) and SK Hynix (NASDAQ:SKHY) have all retreated more than 20% from recent peaks as investors questioned valuations and the durability of AI infrastructure spending.

However, Citi argues that the sector’s long-term fundamentals remain compelling.

The bank said the current cycle “is likely to outperform the ’01–’07 upcycle given that AI demand is driving both DRAM and NAND demand.”

Multi-Year Agreements Support Earnings Visibility

Unlike previous cycles, customers are increasingly securing supply through long-term agreements lasting between three and five years.

Citi believes these contracts demonstrate confidence that demand will remain elevated well beyond the near term while providing greater earnings certainty for memory manufacturers.

HBM Demand Continues to Expand

Although shortages of high-bandwidth memory are encouraging AI companies to redesign system architectures using more GPUs with less HBM per chip, Citi believes total HBM demand will continue to accelerate.

The bank forecasts HBM capacity per AI system will increase from 20.7 terabytes to 110.6 terabytes, representing growth of 434%, as GPU counts expand from 72 to 576 per system.

SK Hynix Remains Citi’s Preferred Pick

Citi expects SK Hynix to announce additional shareholder returns following recent comments from management that capital allocation options are under review.

“As the mid-to-long-term earnings visibility becomes clear, supported by the ongoing AI memory upcycle and the substantial advance payments secured through LTA agreement, we anticipate Hynix to share constructive market outlook as well as decent shareholder returns,” the analysts said.

The bank maintained its Buy recommendation on SK Hynix, increased its operating profit forecasts for both 2026 and 2027, and reiterated its target price of 3,100,000 won.

Copper prices have climbed back to near-record levels as markets continue to anticipate new U.S. import tariffs. Strong buying ahead of any policy announcement has tightened physical supplies and reshaped global trade flows, but the metal’s recent gains could face pressure if the final tariff measures fall short of expectations.

Copper Prices Climb as Supply Tightens

Copper is trading above $14,000 per tonne, hovering close to historic highs. At the same time, inventories on the London Metal Exchange (LME) have continued to decline, while the cash-to-three-month spread has moved further into backwardation, highlighting increasingly tight conditions in the physical market.

Over recent months, traders have accelerated purchases in anticipation of potential U.S. tariffs, with the effects becoming increasingly visible through inventory movements, trade patterns and pricing signals.

U.S. Tariff Expectations Fuel Market Momentum

Imports into the United States have surged as buyers move copper ahead of any potential tariff implementation. COMEX stockpiles have climbed to record levels, while U.S. copper imports exceeded 200,000 tonnes in July, marking the strongest monthly inflow in at least 12 years.

Outside the U.S., the London market has become noticeably tighter. LME inventories have dropped to a five-month low, while the cash-to-three-month spread has widened to roughly $120 per tonne in backwardation, compared with around $40 just one week earlier. The move represents the widest spread since October and reflects mounting pressure on short-term supply.

Structural Demand Continues to Support Prices

Although tariff speculation has been a major catalyst for the rally, the market is also benefiting from supportive long-term fundamentals.

Mine production remains constrained, while treatment charges continue to signal limited concentrate availability. At the same time, demand from electrification projects, power infrastructure investment and artificial intelligence-related data centre expansion remains robust.

Current projections continue to point to a refined copper deficit of around 35,000 tonnes globally in 2026.

Final Tariff Decision Could Drive Volatility

Markets have largely priced in the expectation that tariffs will be introduced in line with current assumptions.

Should the final policy be delayed, scaled back or exclude refined copper, some of the premium built into prices may quickly disappear. Imports into the United States would likely slow, inventory flows could rebalance and supply pressures outside the country would begin to ease.

A retreat in prices could also accelerate if speculative investors unwind positions established ahead of the anticipated tariff announcement.

Long-Term Outlook Remains Constructive

The possibility of U.S. tariffs has already had a significant impact on the copper market, tightening physical conditions, altering global inventory flows and lifting prices towards record territory.

Once policymakers reveal the final measures, investors are likely to shift their attention back to the market’s underlying fundamentals.

While prices could experience a short-term correction if expectations are not met, the broader outlook for copper remains supported by supply constraints and resilient demand. Any pullback would more likely reflect changing expectations around tariffs than any weakening in the metal’s long-term fundamentals.

The UK equity market could prove more resilient than U.S. stocks if enthusiasm surrounding artificial intelligence fades, according to a new report from Capital Markets. The research suggests the FTSE 100’s limited exposure to technology companies and its defensive sector mix leave it in a stronger position than many international indices.

Although U.S. technology shares have driven global markets for much of the year, recent weakness has highlighted the differing performance of more diversified markets. The FTSE 100 has continued to show relative strength, outperforming expectations during periods of heightened geopolitical uncertainty.

So far this year, the FTSE 100 has risen 9.21%, adding around 2% over the past month. The Nasdaq 100, meanwhile, is up 12.17% in 2026 but has declined 3.6% over the same monthly period.

A Very Different Market From the Dotcom Era

“If the AI-fueled stock market bubble is bursting, we believe the UK stock market will hold up better than most of its peers, unlike the post-dotcom crash,” said Joe Maher, senior market economist at Capital Markets.

The firm argues that the UK’s equity market bears little resemblance to the one that existed during the dotcom boom.

At that time, technology, IT and communications companies represented around 30% of the MSCI UK Index. Today, those sectors account for just 3%, significantly reducing the market’s exposure to a technology-led sell-off.

“As a result, the tech sell-off at the time weighed heavily on the UK equity market, while its minimal tech exposure and defensive composition should now put it in a good position,” Maher said.

Resilient Growth Could Cushion Markets

Capital Markets believes another important difference is the economic backdrop.

Unlike the early 2000s, when the collapse in technology stocks coincided with a U.S. recession, the firm expects economic activity to remain relatively resilient if AI valuations correct.

That should “limit the downside in global stock markets,” including UK equities.

Dollar Weakness Could Add Further Support

The report also argues that a reversal of the AI trade would likely weaken the U.S. dollar.

“If the AI boom turns into a bust, we expect a shift toward monetary easing by the Fed and a slowdown in capital flows to the US to cause a general weakening of the dollar, including against the pound,” Maher said.

Despite that view, Capital Markets continues to expect sterling to weaken over the longer term as it anticipates Bank of England rate cuts next year.

Defensive Leadership May Continue

The firm’s analysts note that the FTSE 100 has recently benefited from higher oil prices and stronger financial stocks, although they expect those advantages to diminish over time.

Even so, Capital Markets maintains that the AI boom is likely to unwind over the next year and believes “it is possible that this process is already underway.”

Societe Generale has reaffirmed its bullish outlook for U.S. equities, arguing that corporate earnings strength is becoming increasingly widespread rather than remaining concentrated in large technology companies. The bank continues to forecast the S&P 500 reaching 8,000 and advises investors to “buy the momentum dip.”

Corporate Results Continue to Impress

Chief U.S. Equity Strategist Manish Kabra called the current reporting season “another stellar earnings season,” highlighting that roughly six in ten companies have released results, with only 9% failing to meet expectations, “the lowest reading ever.”

SocGen estimates that 86% of companies have exceeded earnings forecasts, while profit margins have expanded across all but one sector. Both overall S&P 500 margins and margins excluding technology have climbed to record levels.

Analysts Are Becoming More Optimistic

The bank also noted that earnings winners continue to outperform the wider market, even after momentum moderated during the reporting season. Companies missing expectations have continued to lag.

Positive analyst revisions remain strong, with upgrades comfortably exceeding downgrades by a ratio of 15 to 10. Technology, financials and industrials continue to lead improvements, while SocGen has lifted its 2026 S&P 500 earnings forecast to $335 per share.

AI Spending Shows No Signs of Slowing

SocGen believes artificial intelligence remains a major long-term growth driver.

The bank said the “hard data” is accelerating, citing stronger cloud growth from the leading hyperscale providers, a $300 billion increase in order backlogs and an additional $150 billion in planned capital expenditure.

Industrials also stand out, with record profit margins and improving earnings revisions. Large-cap industrial earnings are forecast to rise by 15%, while small-cap companies are expected to deliver around 30% growth.

Equal-Weight Stocks Remain the Preferred Trade

According to Kabra, earnings growth is becoming increasingly diversified across the market. He described the record performance of the S&P 500 Equal Weight Index as “a testament to this,” with cycle drivers “still running hot.”

While higher real yields and elevated leverage could restrict further valuation expansion, SocGen believes a major correction would require substantially tighter monetary policy alongside an inverted yield curve—an outcome it does not currently anticipate.

As a result, the bank continues to favour the equal-weight S&P 500 and maintains its 8,000 target for the benchmark index.