The current quarterly reporting season is seeing a long-awaited recovery among companies that were previously overshadowed by the AI ​​boom.

What happened: A shift in earnings growth within the S&P 500 Index. The Magnificent Seven, a group of seven large technology companies, have been the main drivers of index gains for several quarters. But the other stocks in the index are expected to post their first earnings growth since the fourth quarter of 2022, Bloomberg reports.

Keith Lerner, Co-Chief Investment Officer at Truist Advisory Servicesviews this broader earnings strength as a positive development that offers more balanced market opportunities, the report says.

Although over 80% of S&P 500 companies have reported their results, key indicators of the health of U.S. consumers, including Home Depot Inc., Walmart Inc.And Target Corp.have yet to announce their figures.

Their reports, together with those of the AI ​​giant Nvidia Corp.are closely watched for insights into consumer spending and a possible economic slowdown.

Interestingly, earnings growth extends beyond large-cap companies. Data from Bloomberg Intelligence shows that S&P 500 companies (excluding the Magnificent Seven) will increase earnings by 7.4% in the second quarter, ending five consecutive quarters of declines.

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Major AI players like Amazon.com Inc., Microsoft Corp.And Alphabet Inc. have reported disappointing outlooks, raising concerns about the return on AI investments. This has led to speculation that companies may scale back AI projects to maintain margins, especially if the economy weakens.

Despite the overall positive results, there were frequent sales losses in this quarter. In 21 percent of cases, companies’ sales were below estimates, compared to 20 percent in the previous year.

Why it is important: The shift in earnings growth marks a significant change in market dynamics. The broader earnings strength suggests a more balanced market that offers investors diversified opportunities.

Upcoming reports on key consumer health indicators will provide further insights into the state of the economy and consumer spending.

However, disappointing forecasts from major AI players and the increased frequency of revenue losses this quarter raise concerns about the sustainability of this earnings growth.

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