NEW YORK (Reuters) -U.S. companies could report milder earnings growth in the third quarter than earlier this year, partly due to a likely tariff hit, while investors look for signs that heavy spending on artificial intelligence is paying off.
While most U.S. corporations have managed to beat earnings expectations even after U.S. President Donald Trump first announced wide-ranging tariffs on imports in April, the full impact of his trade policies remains uncertain.
With optimism about emerging AI technology lifting Wall Street indexes to record highs this year, investors are likely to focus more on AI-related capital expenditures than tariffs and other risks.
Analysts expect S&P 500 companies to post 8.8% higher earnings than in the 2024 third quarter, according to the latest LSEG forecast. Year-over-year growth was above 13% in each of the first two quarters of 2025.
The reporting period unofficially kicks off next week with results from some of the biggest U.S. banks.
The S&P 500 and Nasdaq registered record closing highs on Wednesday, boosted by AI-related megacaps that have been market leaders this year.
Earnings from the so-called Magnificent 7 group of megacap stocks and AI leaders could be "very robust," said Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan.
"But investors are going to be skeptical about some of the commentary on capex spend," he said. "Investors are starting to get a little more concerned about the money that's being spent there, and the payback for that investment."
Valuations have hit levels some investors consider frothy, with the S&P 500 now trading at roughly 23 times forward earnings estimates and well above its 10-year average of 18.7, based on LSEG Datastream data. High valuations in megacap technology and growth stocks present a particular risk given the worries about AI investment and spending.
Companies continue to pump more money into AI and negotiate AI-related deals, such as AMD's announcement earlier this week that it will supply chips to OpenAI in a multi-year agreement.
Investors are especially keen to see quarterly results for guidance because the U.S. government shutdown that began October 1 has held up official economic reports from the federal government.
The information void has made it more difficult to get a sense of how the economy is doing and how the Federal Reserve might proceed with interest rates. The U.S. central bank last month cut rates for the first time since December amid labor market weakness.