S&P 500 Q3 profits seen rising 29.6%, but AI sector guidance creates uncertainty

S&P 500 earnings are forecast to climb 29.6% in Q3. According to a CNBC investment panel, whether the current rally continues may hinge on what AI companies say in their guidance, rather than on the growth number itself.

The bar for Q3 earnings is high: FactSet data indicates that growth has beaten projections in 37 out of the last 40 quarters. A result that merely matches estimates might be seen as a letdown.

Are Q3 Earnings Already Priced In?

One member of the panel believes the results will be broadly in line with predictions. FactSet data reveals that Q3 estimates were revised up by 1.4% over the quarter. Historically, such estimates drop by an average of 2.5% over a comparable period.

Of the 19 S&P 500 firms that had disclosed results by Oct. 9, 84% have outperformed projections.

The same panelist stressed that guidance will be the true measure. The FactSet Earnings Insight report forecasts 15.8% earnings growth for 2027, compared with 32.7% for 2026.

Companies have already set a high bar for guidance. A record 72 S&P 500 businesses provided optimistic Q3 earnings guidance, 44 of which are in the technology sector.

One panelist suggested that how the market reacts could matter more than the figures, citing Nvidia as an example where share prices have sometimes fallen short of robust results.

A different panelist pointed out that more than half of S&P 500 companies are currently trading below their 200-day moving averages.

Will AI Spending Keep Holding Up the Market?

For the tech sector, the major test is whether hyperscalers—the cloud behemoths constructing AI data centers—maintain their expenditure levels, according to a panelist. The same panelist noted that interviews with executives point to no retreat, as reducing spending could mean falling behind in the AI competition.

The panelist further commented that more stable bond yields, the week's inflation figures, and big bank earnings might allow other industries to close the gap.

Taking the opposite view, another panelist identified financing as a concern, referencing reports of rising investor caution over debt incurred for AI.

Interest rates are adding to the strain. U.S. Treasury data shows the 10-year yield ending the day at 5.24% on Oct. 9, close to its highest level in 24 years.

One panelist cautioned that a series of disappointments from various technology companies could overwhelm the market. Since tech firms have provided most of the optimistic guidance, the broader index's performance depends heavily on a single industry's success.