AI supports S&P 500 profit growth! Huida and Micron contributed 34% of the growth, becoming the biggest promoters

FactSet's survey of analysts showed that the S&P 500's third-quarter profit forecast increased by 30% year-on-year, with Huida and Micron's contract contributing 34% to the increase. These two artificial intelligence (AI) chip manufacturers, plus 10 companies including Broadcom and Meta, account for about two-thirds of the profit growth of U.S. companies. In other words, the profit growth of the S&P 500 is driven by only a few AI giants.

The Wall Street Journal reported that although the 10 companies also include some oil and gas giants such as Exxon Mobil and Chevron that have benefited from high energy prices triggered by the Iran conflict, the above-mentioned profit forecast shows that the U.S. stock market is highly dependent on several companies related to AI transactions and the rush to build AI infrastructure, despite the high related costs.

Taking Huida and Micron as examples, the abnormal demand for memory and other AI chips has significantly boosted their profits. Micron's financial report last month showed that its quarterly profit increased by more than 10 times, or 1,078%, while Huida is expected to jump by 90%.

Analysts say the risks of concentrated profit growth echo those posed by the broader AI investment boom, namely that the technology may ultimately fail to deliver returns commensurate with the huge sums of money invested in it.

The recent volatility in U.S. stocks reflects this risk. Meta's financial report last Thursday showed that although its revenue hit a record high, it also raised the lower limit of this year's capital expenditure forecast range to expand data center investment, causing its free cash flow to turn negative for the first time since its listing, triggering the most serious sell-off in Nasdaq this year.

Nonetheless, investors are not too worried about profit growth being driven by a handful of companies. The main reason is that profits for the overall market are still growing, albeit at a slower pace. Chris Grisanti, chief market strategist at MAI Capital Management, said that even if the above 10 stocks are excluded, the profit growth of the remaining S&P 500 stocks in the third quarter is expected to increase by 10% annually. Considering that this bull market has entered its fourth year, this performance is already quite good.

However, he also said that his team is preparing for a slowdown in profit growth and has shifted from selling shovel stocks to overweight power suppliers. This thinking is based on: as the construction of data centers advances, power demand will continue to rise even if the tight supply of memory eases.