Wall Street Expects S&P 500 Profit Growth to Collapse From 35% to 15% in 2027

S&P 500 earnings are surging at the fastest pace in years, but Wall Street analysts are already bracing for a sharp deceleration that could expose how narrow and fragile the current rally really is.

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Corporate America is having one of its best profit years on record. S&P 500 earnings are expected to rise 35% in 2026, the fastest pace since 2021. Analysts tracked by LSEG IBES expect growth to drop to 15% in 2027, according to Reuters. The economy is returning to a normal pace, and stock prices have already started to correct.

Government data show how big the boom has been. The Commerce Department reports that total U.S. corporate profits reached a $4.7 trillion annual rate in the second quarter, 20.8% higher than a year earlier. Manufacturing profits rose to $1.05 trillion from $812 billion just one quarter before. Much of that came from factories supplying chips, servers, and power gear for data centers.

Results that strong are hard to top. “We’ve had great earnings. The bad thing is the comparisons are going to be very difficult next year,” Walter Todd, chief investment officer at Greenwood Capital, told Reuters. Barclays strategists note that 15% would still top the 10% median annual growth rate of the past 35 years.

Five hyperscalers are expected to spend just over $800 billion this year and $1.1 trillion in 2027. The growth rate drops from nearly 100% to 37%. For chipmakers and cooling-equipment suppliers, smaller budget increases mean smaller revenue gains (we profiled seven of the power, cooling, and networking names behind that expansion in a free report you can grab here).

Interest rates make this harder. The Federal Reserve raised rates by 25 basis points in September, and Chair Kevin Warsh indicated that he will keep fighting inflation. Higher borrowing costs make companies less willing to fund AI buildouts with debt. They can also cool household spending, which grew at a 3.8% rate in the second quarter.

Stock prices already reflect this. The S&P 500’s forward price-to-earnings ratio has dropped to 19 from 22 in January. AI infrastructure stocks fell from 32 times forward earnings in April to 22 times. The SPDR S&P 500 ETF Trust (NYSEARCA:SPY) is up 12.86% this year because earnings have grown faster than valuations have fallen.

Mike Wilson, Morgan Stanley’s chief U.S. equity strategist, calls this a “classic mid cycle transition”. More than 40% of Russell 3000 stocks have fallen at least 20% since June, while the index remains near record highs. For 401(k) investors, headline returns come from a shrinking group of companies.

Third-quarter reports begin in the coming weeks. The key number is 2027 capital spending guidance from hyperscalers. If they confirm budgets near $1.1 trillion, the 15% forecast holds and the valuation correction looks complete. If any major spender cuts its budget, chip and equipment suppliers would take the first hit. “I do think that the rate of earnings growth will slow. I think the question will be: by how much?” said Michael Arone of State Street Investment Management.

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After two decades of patrolling the dark corners of suburbia as a police officer, Rich Duprey hung up his badge and gun to begin writing full time about stocks and investing. For the past 20 years, he’s been cruising the markets looking for companies to lock up as long-term holdings in a portfolio while writing extensively on the broad sectors of consumer goods, technology, and industrials. Because his experience isn’t from the typical financial analyst track, Rich is able to break down complex topics into understandable and useful action points for the average investor. His writings have appeared on The Motley Fool, InvestorPlace, Yahoo! Finance, Money Morning, and, of course, 24/7 Wall St. He has been featured in both U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, and USA Today.

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