AI spending dividends spread across all industries; S&P 500 third-quarter earnings expected to achieve broad-based growth.

As the dividends of AI spending begin to ripple through the broader economy, the next earnings season is expected to strengthen across the board. Research data shows that all S&P 500 sectors are projected to post earnings growth in the third quarter, which would be the first time since U.S. companies emerged from the pandemic trough in 2021. "The earnings front has begun to broaden out just last quarter, non-AI companies also posted fairly significant beats," Ohsung Kwon, chief equity strategist at Wells Fargo, said in an interview. "We're starting to see more broad-based earnings strength." Industrial companies that make products such as vacuum pumps, cooling systems and specialty coatings are seeing revenue surge as data center construction continues to boost demand for their products. Consumer-facing companies are benefiting from AI buildout, which is creating jobs and housing demand, while rising stock portfolios are encouraging people to spend heavily on shopping, travel and dining out. "The overwhelming theme, and the factor driving the broadening of earnings, has to do with the scale of AI-related capital expenditures," said Venu Krishna, head of U.S. equity strategy at Barclays. "The dollar amount is so large that what hyperscalers are spending on AI capex is effectively revenue for many other industries, whether it's storage, hardware, or parts of industrials, energy and utilities." The big winners of recent quarters large-cap tech stocks and oil stocks are still expected to stand out, with earnings growth of 62% and 111% respectively, far outpacing other sectors. The rest of the benchmark index is also expected to expand as more companies benefit from increased AI usage. "One of the first areas to get hit when rates rise is construction employment, but we haven't seen that because data center growth has been so rapid that much of the workforce has been reallocated," Krishna said. Aramark raised its outlook for the second time this year after signing new agreements with data center operators to provide food service, cleaning and transportation services at their campuses, expected to generate $400 million to $500 million in additional revenue over the next two years. Consumer-facing companies are also beginning to capitalize on AI deployment in their own operations. Analyst Mary Ross Gilbert said investment in AI-driven shopping tools, customer service and distribution could make baby clothing company Carter's more efficient and help drive margin expansion. The healthcare sector is expected to return to earnings growth this quarter, while banks are poised for double-digit growth. According to research led by Barclays' Krishna, companies in these sectors are the most willing to quantify AI-related benefits, including cost reductions or productivity gains. Kwon said financial services companies are also poised to benefit from potential blockbuster IPOs of AI companies, while regional banks should benefit from more wealth flowing through communities where data centers are located. While sectors such as consumer staples, real estate and industrials are expected to see solid growth in coming quarters, some more difficult areas remain. Within financials, the insurance industry is expected to see earnings decline in the third quarter due to weaker pricing and rising loss costs. The media and advertising segments within communication services are being dragged down by tighter marketing budgets and clients shifting to using AI to create ad campaigns themselves. Kwon said the AI spending boom carries the risk of being too tightly tied to a single sector, adding that he turned more cautious on stocks a few weeks ago due to concerns about whether AI-related capital expenditures can be sustained. Krishna said potential challenges include rising interest rates and increased stress in credit markets. Growing public backlash in some communities where data centers are being built, as well as recent calls by top AI leaders for a potential slowdown in developing powerful frontier models citing safety concerns, could add further uncertainty. "Data center moratoriums, especially near the midterm elections, I think that's also a huge risk, especially in terms of market sentiment," Kwon said, adding that any delays in data center construction would pose downside risks to AI and tech stocks. "The AI trade really is the bottleneck trade right now, and any delay would at least slightly ease that bottleneck."