US S&P 500 third quarter net profit expected to rise 30%... NVIDIA and Micron account for ⅓

Although the net profits of listed U.S. companies are expected to increase significantly in the third quarter, much of the profit growth appears to have been concentrated in a small number of large artificial intelligence (AI)-related stocks.

The Wall Street Journal (WSJ) reported on the 25th (local time) that the net profit of S&P 500 companies in the third quarter of this year is expected to increase by 30% compared to the same period last year, citing FactSet compilation and Dow Jones market data analysis.

However, 34% of the total profit increase was calculated to come from two companies, Nvidia and Micron.

If we expand the scope to include the top 10 companies, including Broadcom and Meta, it turns out that these companies account for about two-thirds of the total profit increase.

The top 10 companies also included large oil and gas companies such as Exxon Mobil and Chevron, which benefited from the rise in oil prices due to the US-Iran war.

Micron and Nvidia's strong performance is due to unusually strong demand for AI semiconductors such as memory.

Micron reported its quarterly net profit last month, which surged more than 10 times compared to the previous year, and experts predict that Nvidia's net profit will also surge by 90%.

Good corporate performance is a major factor that has supported the upward trend of the stock market despite various negative factors such as the US-Iran war.

However, the AI-led stock market rise reflects not only current performance but also expectations that massive AI investments can lead to continuous profits in the future. Accordingly, concerns have been raised that stock prices may fall if investment performance falls short of expectations.

“There is concern that we might end up converting all these data centers into pickleball courts,” said stock expert Ed Yardeni.

On the other hand, there is also a view that there is no need to be pessimistic about the market based solely on performance.

This is because even if the top 10 stocks are excluded, the profits of the remaining S&P 500 companies are expected to increase by 10% compared to the previous year.

“The best players are leading the team, but the rest of the players are also doing their part,” said Chris Crisanti, chief market strategist at MAI Capital Management.

In addition, there is an assessment that the valuation burden has been lowered compared to the beginning of the year as stock prices have not risen excessively compared to the increase in profits.

Some people compare the recent stock market strength to the dot-com bubble of the late 1990s, but Chief Investment Officer Ray Adam Raymond James pointed out that there was an important difference in that dot-com companies at the time did not make as much money as they do now.