Published August 14, 2026
We could also title this, “Another wall of worry comes crashing down.” Or maybe “AI perhaps will not kill off software.”
This week, earnings from several of the AI suppliers and users, read: software, were stellar leading to surges upward in stock prices. That has taken the Nasdaq back near record highs while the S&P 500, small caps, mid-caps, and international stock indexes are already there.
Here’s a chart of the software sector having now recovered from a steep -33% drawdown.
Much of the same for semiconductors and other AI-related sectors.
As Delta Research notes, broadly:
“The US stock market is on track for 15% revenue growth, 50% EPS growth, with 16.9% margins. Even if you strip out Amazon and Alphabet (Google), you get 30% EPS growth with 15% margins. The previous margin record is 14.8% set in the first quarter of this year.
The breadth and strength of the market is impressive. “More than 80% of S&P 500 companies are growing earnings, one of the highest shares in the past 20+ years. The share of companies growing earnings is on par with what we saw post GFC (Great Financial Crisis). The only time a higher share of companies were growing earnings was the period post COVID … If consensus is correct, S&P 500 earnings would grow 20% YoY for four straight quarters – a run that has occurred only 10 times since the 1930s. Growth this strong outside of an EPS recession is exceptionally rare, occurring once in the 2010s and once in the1950s.” JPMorgan.
Broad-based earnings strength on record high margins may be a sign of AI productivity gains. Through second quarter earnings season to date, 25 companies have quantified the impact of AI on profitability. The average margin improvement is reported at ~150 basis points (1.5%).”
Market Update
After a strong move upward the prior Friday, stocks gave back a relatively scant -0.3% Monday as interest rates ticked higher ahead of Wednesday’s release of the latest report on inflation. Stocks continued their modest retreat Tuesday with the Nasdaq down -0.6%. Oil prices moved higher while Mag 7 stocks slid on a report that Nvidia was working with several asset managers to provide $500 billion in financing for data center buildouts. But Wednesday brought out the bulls with strong earnings reports from AI-related names Coreweave, Lumentum and Super Micro fueling a surge in the tech sector. A benign inflation report also cleared the way for bullish buying leaving the Nasdaq higher by +0.5%. A favorable report on producer prices brought more buying Thursday with indexes pushing upward by +0.8%. Adding fuel to the tech sector was a report on a possible buyout of software maker Workday by a private equity company. The report lifted shares of software companies broadly. A slim -0.2% step back Friday with oil prices and interest rates rising once again to dampen the enthusiasm for growth shares.
A modestly positive week provided some follow-through on the prior week’s breakout. The S&P 500 rose +0.40% while the Nasdaq 100 (QQQ) gained +1.11%. Small cap stocks lifted +1.17% to solidify recent record highs.
Warm wishes and until next week.