U.S. S&P 500 Q3 Net Income Seen Rising 30%... Nvidia and Micron to Drive 34% of Increase

Net income at major U.S. companies is expected to rise 30% in the third quarter of this year from the same period last year. However, concerns are emerging that earnings growth is concentrated among a small number of large AI-related companies, such as Nvidia and Micron.

Reuters-Yonhap News

On Oct. 25 (local time), The Wall Street Journal (WSJ), citing analyses by financial data provider FactSet and Dow Jones Market Data, reported that net income at companies in the S&P 500 is expected to increase 30% year over year in the third quarter.

Nvidia and Micron are expected to account for 34% of the total increase in net income. Expanding the group to include the top 10 companies, such as Broadcom and Meta, brings their share to about two-thirds of the total increase. The group also includes energy companies such as ExxonMobil and Chevron, which have benefited from rising global oil prices amid the war between the United States and Iran.

Nvidia and Micron have improved their earnings on the back of a surge in demand for AI semiconductors. In particular, the sharp increase in demand for AI chips, including memory semiconductors, has strengthened semiconductor companies' pricing power. Micron's quarterly net income, announced last month, surged 1,078% year over year. Market experts also expect Nvidia's net income to rise 90%.

The question is whether massive investment in AI can continue to generate returns in the future. Recent gains in the share prices of AI-related companies reflect not only their current earnings but also expectations of future profits from large-scale data center investments and growing demand for AI services.

On Wall Street, concerns are growing that the stock market could undergo a correction if actual returns fail to meet expectations relative to AI investment. Market expert Ed Yardeni likened the situation to one in which data centers built with massive investments might eventually have to be converted into pickleball courts.

Others argue that there is no need to take a pessimistic view of the market simply because earnings growth is concentrated among a small number of large companies. Net income at the remaining S&P 500 companies, excluding the top 10, is also expected to increase 10% year over year. Chris Crisanti, senior market strategist at MAI Capital Management, said that while companies with the most pronounced earnings growth are leading the market, other companies are also performing well.

Some analysts also say that valuation concerns have eased compared with the beginning of the year, as share prices have not risen as much as corporate earnings. While some compare the AI investment boom to the dot-com bubble of the late 1990s, major technology companies today are actually generating substantial profits, unlike then. Larry Adam, chief investment officer (CIO) at Raymond James, stressed that companies during the dot-com bubble were not earning profits at today's levels, saying the current stock market is in a different situation from that of 2000.

This content was produced with the assistance of AI translation services.