US stocks' Q2 profit growth far exceeded expectations, with Wall Street raising the year-end average target for the S&P 500 to 7,894 points.

According to Bloomberg, S&P 500 constituents posted a 31% year-over-year profit increase in the second quarter, exceeding the prior consensus estimate of 23%—the strongest growth for the index since Bloomberg Intelligence began tracking data in 1992, excluding recovery periods following major recessions. Over 90% of S&P 500 members have reported their earnings, with the first half’s overall profit performance on track to be the strongest since 2021. Analysts attribute the earnings beat to two factors: U.S. economic resilience and margin expansion driven by artificial intelligence (AI). The net profit margin of S&P 500 constituents has risen from a level that struggled to break 14% to nearly 16%. Mark Hackett, chief market strategist at Nationwide, noted that AI, which was largely a cost center for years, has reached an inflection point this year and is now becoming a profit driver. As profit growth outpaces the index’s price gains, the S&P 500’s 12-month forward price-to-earnings (P/E) ratio has fallen from around 26 at the start of the year to just under 22. Wall Street strategists have also steadily raised their forecasts: the average year-end target for the S&P 500 has climbed to 7,894 points, leaving roughly 1% upside from the index’s record high set this week; the full-year profit growth forecast has been lifted from 15% at the start of the year to 27%. This round of profit growth is no longer limited to large tech firms. As of August 12, roughly three-quarters of the approximately 1,500 U.S. public companies that have reported earnings beat both earnings per share (EPS) and revenue estimates. The healthcare sector was the only S&P 500 group to post a profit contraction in the second quarter.