Wall Street's Earnings Beat Amid AI Anxiety & Zuckerberg’s AI Manifesto

**SPEAKER_1** (0:00)
This episode is brought to you by Charles Schwab. Timing the market, fighting inflation, managing risk? Financial decisions can be tricky. Investing isn't just math, it's psychology. Your neurons are playing favorites, and the market doesn't care. Financial Decoder, an original podcast from Charles Schwab, can help.
Join host Mark Reapy as he breaks down practical strategies to help overcome the mental traps that may affect your investing decisions.
Listen at schwab.com/financialdecoder.

**Mark Reeth** (0:31)
Mark Zuckerberg's AI Manifesto went down like a lead balloon.

**Lucy Brewster** (0:34)
Berkshire Hathaway is finally spending some of its almost $400 billion cash hoard, and everybody's bullish, so it might be time to get bearish.

**Mark Reeth** (0:42)
It's Monday, August 10th, which means it's National S'mores Day, and we've got s'more great stories coming your way right here on Brew Markets Daily.
More market details to come, but first, don't touch that dial. You're in the right place. Ann Berry is on holiday and will be back tomorrow. In the meantime, I'm Mark Reeth, the editor of the Brew Markets Newsletter, hitting your inbox weekdays right after the closing bell, or you can find us anytime you want on brewmarkets.com. And today, I'm joined by intrepid newsletter reporter, Lucy Brewster. Lucy, how's life?

**Lucy Brewster** (1:23)
I'm pretty good, Mark. It's great to be here today on the podcast.

**Mark Reeth** (1:27)
Great to be here, absolutely. We got a lot to talk about today, but first, let's start with earnings. About 90% of the S&P 500 has reported earnings, and with the season coming to a close, it feels like a good time to step back and take stock of the market. So far, things are doing pretty darn good. Bank of America reports that second quarter earnings per share rose 30% year over year, with 76% of companies beating analysts' EPS estimates. That's the best results since early 2021 Eighty-one percent of stocks, or 10 out of 11 sectors, are on pace for positive year over year earnings growth. And as for revenue, Factset reports that the revenue growth rate for the entire S&P 500 should hit about 15%.
And if it does, that'll be the highest revenue growth since Q4 2021
Now, that's a lot of numbers I just threw around, Lucy. The TLDR is earnings look great, and the market keeps climbing to new highs.

**Lucy Brewster** (2:22)
So are there any particular sectors or themes that Wall Street analysts are watching?

**Mark Reeth** (2:27)
Absolutely. The name of the game is still AI. Median EPS growth for AI-related companies climbed to 28%, while non-AI-related stocks only saw 12% growth, according to Bank of America. But some analysts are starting to get worried that growth is only going to slow down from here. Wall Street Consensus says AI companies will only see EPS rise 16% next quarter, way down from 28%.
That's still pretty good, but as Bank of America pointed out, investors may demand earnings acceleration. Good isn't good enough when it comes to AI earnings. Investors are already worried about accelerating capex from the biggest names in the AI game. If their earnings growth starts to wane, it could spark a serious loss of faith in the hyperscalers that are supporting the entire market.

**Lucy Brewster** (3:16)
Yikes. That doesn't sound good. So does that mean we should be ready for a sell-off in the quarters ahead, Mark?

**Mark Reeth** (3:22)
Well, not according to JP Morgan. The bank put down a new S&P 500 target just this morning, forecasting that the index will end the year at 8,000. That's up from their previous target of 7,800 and about 3, 3.2% higher than where it stands today.
That's above the Wall Street average, and it's the second time in two months that the bank has raised its forecast.
Analysts there actually believe that the AI spending is starting to pay for itself. They think that a bigger customer backlog for companies like Amazon, Alphabet and Microsoft, as well as stronger cloud growth at those companies, means that good things are ahead for everybody. And yes, hyperscalers like those big companies I just mentioned are spending more free cashflow than they're making. But JPMorgan is confident that their AI efforts will be rewarded with stronger revenue growth and better returns on invested capital.
Let me bottom line all of that. This earnings season was really solid, and it helped the market hit new highs last week. Some on Wall Street are confident that the good times will keep rolling, and others are starting to get wary that earnings growth won't be able to keep up with investor expectations. Only time will tell who gets it right. Coming up in a moment, quote, the future is for everyone. We dive into Zuckerberg's over 6,000 word AI manifesto. Before our next story, this episode is brought to you by Charles Schwab. Timing the market, fighting inflation, balancing risk. No one says financial decisions are easy. In fact, it's the exact opposite. Financial decisions can be really tricky, and it's often your own thinking that can lead you astray. Financial Decoder, an original podcast from Charles Schwab can help.