U.S. companies are expected to report their highest quarterly earnings growth in five years as the current earnings season unfolds, but investors and analysts are increasingly focused on what corporate leaders say about the future rather than just their financial results. Earnings for the third quarter are anticipated to have grown by approximately 30 percent year-on-year, according to data from FactSet. However, forecasts for 2027 suggest a significant slowdown, with earnings growth predicted to decline to around 16 percent.
Market participants are showing heightened caution, particularly around investments related to artificial intelligence (AI). This apprehension is reflected in a sell-off of data center debt, signaling investor unease about whether companies will meet or exceed expectations going forward. Unless companies deliver exceptional results this quarter, corporate communication—chief executives’ commentary about outlook and strategy—will play an increasingly influential role in shaping share prices in the weeks ahead.
The broader economic environment remains generally positive, providing some reassurance. Capital expenditure has increased by more than 10 percent this year even outside the technology sector, indicating broad business confidence. Nonetheless, profit margins may come under pressure if inflation persists. Bank of America data shows that mentions of rising input costs reached their highest level in four years during the previous quarter. On the other hand, wage growth, which typically constitutes a larger component of cost increases than energy prices, remains moderate so far.
AI-related topics are expected to feature prominently during earnings calls, where leaders may face intensified scrutiny about the extent and effectiveness of their AI investments. While roughly half of the S&P 500 companies discussed using AI to boost productivity and efficiency after the second quarter, only a small fraction—around 2 percent—have quantified the benefits, according to analysts at Goldman Sachs.
Looking ahead, companies that proactively address the prospects and challenges for 2027 may gain a strategic advantage amid what is expected to be a more uneven year. Historical data from Citigroup analysts indicate that in about two-thirds of past instances when earnings growth slowed, markets still posted gains averaging around 5 percent. However, notable exceptions include the year 2000, during the collapse of the dotcom bubble, and 2022, when energy-driven inflation negatively affected high market valuations.
Experts emphasize the value of transparent and early communication on difficult topics as a best practice, suggesting that companies fare better when they address concerns voluntarily rather than reactively. This approach may be especially critical during a period when investor sentiment is sensitive to both financial results and the forward-looking statements of corporate leaders.