Key takeaways
- 82% of reporting companies beat quarterly earnings estimates
- Profit surprises remain unusually small despite strong growth
- AI valuations continue falling as investors question spending
More than 80% of S&P 500 companies reporting third-quarter earnings have exceeded Wall Street expectations, yet October's artificial intelligence stock crash reveals a growing disconnect between corporate profits and investor confidence.
According to FactSet's October 30 earnings report, 82% of companies reporting results beat earnings-per-share estimates, compared with the five-year average of 78%.
However, the size of those surprises tells a different story. Aggregate earnings exceeded forecasts by just 1.9%, far below the five-year average of 7.5%.
The divergence raises an important question: why are investors selling technology stocks when corporate earnings remain strong?
S&P 500 Earnings Grow 30% Despite October Selloff
Approximately 60% of S&P 500 companies had reported third-quarter results by October 30.
FactSet estimates blended earnings growth of 30.2%, combining actual results with forecasts for companies yet to report. That would mark the third consecutive quarter of profit growth exceeding 25%.
Revenue growth is also substantial, reaching 13.4% across the index.
All 11 sectors are reporting positive annual earnings growth, with energy, information technology and materials among the strongest performers.
However, the average earnings surprise remains unusually small.
If the 1.9% aggregate surprise persists through the end of reporting season, it would represent the weakest result since the fourth quarter of 2022.
That suggests companies are meeting elevated expectations without consistently delivering the substantial upside that previously supported technology valuations.
Why AI Stocks Are Falling Despite Strong Profits
October's weakness was concentrated in technology companies rather than the broader market.
The S&P 500 technology sector declined 6.8%, while nine of the benchmark's 11 sectors advanced.
Coinpaper previously reported that 72% of S&P 500 stocks gained during October, even as the capitalization-weighted index declined approximately 0.9%.
The technology selloff reflected concerns about the enormous investments required to expand AI infrastructure.
