We are right in the heart of earnings season with 42% of the S&P 500 reporting this week, including most of the Mag7. The performance of the stock market since the start of April has been astounding. This chart from JP Morgan highlights a big reason why.
Annual S&P 500 EPS estimates almost always drift lower in the first months of the year as the initial optimism of analysts meets the messier reality of guidance, costs, and macro surprises. As JPMorgan put it, earnings revisions have broken from a long-standing seasonal pattern in 2026, with estimates rising rather than falling in the first quarter. The bank’s framing captures the oddity neatly: “Over the past 15 years, [analysts have] revised their EPS estimates down by an average of 2% between January and April… 2026 is a different story.”
Three forces explain the inversion. First — and biggest — is the AI capex super-cycle finally hitting income statements. Technology sector estimates have been revised sharply higher since mid-February, with much of the move tied to Oracle and Micron, the latter benefiting directly from memory content growing inside Nvidia’s chips. Hyperscaler capex is now tracking toward roughly $775 billion for 2026, and that spending is showing up as revenue and margin for the semiconductor and infrastructure names downstream. Tech profit margins are running near record highs.
Second, the One Big Beautiful Bill Act, signed in July 2025, is doing real work on bottom lines. It restored 100% bonus depreciation retroactively to mid-January 2025 and reinstated immediate expensing of R&D — both massive boosts to capital-intensive businesses and the hyperscalers in particular. Morgan Stanley estimates the bill’s immediate write-off provisions will lift hyperscaler free cash flow by roughly $30 billion in 2026.
Third, breadth is improving. Q1 beats have been led by Industrials, Financials, and Materials alongside Tech, suggesting the upgrade cycle isn’t purely a Mag 7 story. JPMorgan now sees 2026 EPS of $330, up from $315.
