NEW YORK — The S&P 500 pushed further into record territory this week as investors bet that artificial intelligence spending, stronger-than-expected corporate earnings and a resilient labor market can keep the U.S. equity rally moving despite renewed inflation pressure. Lisa Su Chair and Chief Executive Officer Advanced Micro Devices helped frame the market’s central story after AMD reported first-quarter revenue of $10.3 billion, up 38% from a year earlier, and non-GAAP earnings of $1.37 a share, underscoring how chip demand has become one of the strongest engines behind Wall Street’s advance.
The rally has been powered less by broad economic optimism than by a sharp improvement in corporate profits. John Butters Vice President and Senior Earnings Analyst FactSet reported that S&P 500 blended first-quarter earnings growth reached 27.7% as of May 8, up from 27.1% a week earlier and far above the 13.1% rate estimated at the end of March. FactSet said the figure, if sustained, would mark the strongest index earnings growth since the fourth quarter of 2021 and the sixth straight quarter of double-digit profit expansion.
Technology remains the market’s lead sector, with investors concentrating capital in companies tied to chips, cloud computing and AI infrastructure. Lisa Su Chair and Chief Executive Officer Advanced Micro Devices said, “We delivered an outstanding first quarter, driven by accelerating demand for AI infrastructure,” adding that data centers had become the company’s primary source of revenue and earnings growth. AMD’s market value recently stood above $735 billion, while Nvidia, led by Jensen Huang Founder and Chief Executive Officer Nvidia, remained the dominant AI chip company with a market value above $5.5 trillion.
The earnings strength has also shifted Wall Street forecasts higher. Michael Wilson Chief U.S. Equity Strategist Morgan Stanley and his team raised Morgan Stanley’s 2026 S&P 500 target to 8,000 from 7,800, citing expected earnings per share of $339 this year, a 23% increase from 2025. Morgan Stanley said in a note that “our bullish index view is an earnings story, not a multiple expansion one,” while also warning that inflation remains a major risk to its outlook.
Labor data gave investors another reason to stay in risk assets. William Wiatrowski Acting Commissioner Bureau of Labor Statistics oversaw the April employment report, which showed nonfarm payrolls rising by 115,000 while the unemployment rate held at 4.3%. Job gains were concentrated in health care, transportation and warehousing, and retail trade, while federal government employment continued to decline. Average hourly earnings rose 0.2% in April to $37.41 and were up 3.6% from a year earlier, suggesting continued wage growth without an immediate reacceleration in hiring.
The rally is not evenly distributed. Satya Nadella Chairman and Chief Executive Officer Microsoft and Sundar Pichai Chief Executive Officer Alphabet sit at the center of the investor rotation into cloud and AI-linked businesses, while FactSet said Information Technology and Communication Services were among the sectors leading year-over-year earnings growth. Consumer discretionary and financial shares have also benefited from stronger growth expectations, but defensive and rate-sensitive areas have lagged as investors continue to price in higher borrowing costs.
Inflation remains the clearest threat to the rally. Kevin Warsh Incoming Chair Federal Reserve is set to take over the central bank after Senate confirmation at a time when producer prices rose 6.0% in April from a year earlier and consumer inflation accelerated to 3.8%, the highest rate since May 2023. Higher gasoline, diesel and transportation costs have raised concerns that companies may face renewed margin pressure even as equity investors reward earnings momentum.
The market’s next test will be whether earnings can continue to grow fast enough to offset inflation, geopolitical risk and the possibility that interest rates stay elevated longer than investors expected. Jean Hu Executive Vice President Chief Financial Officer and Treasurer Advanced Micro Devices said AMD’s first-quarter results showed “accelerating revenue growth, earnings expansion and record quarterly free cash flow,” a message that captures the optimism now embedded in AI-related equities. For investors, the forward-looking question is whether that profit cycle can broaden beyond a small group of technology leaders and sustain the S&P 500’s record run through the rest of 2026.
JBizNews Desk
