Signal over Noise: S&P 500 earnings are tethered to private fund flows

Ulrike Hoffmann-Burchardi · UBS Global Wealth Management

S&P 500 stock prices are justified only if the roughly 30% profit growth Wall Street expects is delivered.

Wall Street expects S&P 500 profits to surge by over 30% this year, roughly five times the long-term historical average. The speaker argues the signal that matters most is company profit growth. If companies deliver those results, stock prices make sense; if profits fall short, stock valuations could pull back quickly.

“If companies deliver those results, stock prices make sense. But if profits fall short, stock valuations could pull back quickly.”at 0:51

Ulrike Hoffmann-Burchardi · UBS Global Wealth Management

Chipmakers drive 42% of S&P 500 earnings growth, with semiconductor revenue heading toward $1 trillion this year.

Semiconductor makers account for 42% of total S&P 500 earnings growth this year, the largest single driver of the profit engine. Private AI investment is a large part of the demand behind this: a huge portion of the private AI funding goes directly toward buying chips and cloud infrastructure. That spending is helping propel S&P 500 semiconductor industry revenues toward $1 trillion by the end of the year, and the continuing flow of private funding is expected to remain a tailwind for public semiconductor earnings.

“Semiconductor makers drive an impressive 42% of total S and P earnings growth and major cloud providers and other hardware vendors at least another 10%.”at 1:40

Ulrike Hoffmann-Burchardi · UBS Global Wealth Management

Private AI funding is fueling compute demand, a continuing tailwind for public chip and cloud earnings.

Private investment in AI reached over $500 billion in just the first nine months of this year, surpassing total private AI funding from 2023 through 2025 combined. A large share of that money goes directly to buying chips and cloud infrastructure, which drives demand for compute. Although competition is fierce and not every startup will win, the speaker sees the continuous influx of private funding as a tailwind for public semiconductor and cloud earnings for the foreseeable future.

“In just the first nine months of this year, private investment in AI reached over 500,000,000,000, surpassing total private funding from 2023 through 2025 combined.”at 2:24

Ulrike Hoffmann-Burchardi · UBS Global Wealth Management

AI infrastructure earnings growth should stay resilient despite higher interest rates hurting other parts of the economy.

Over half of this year's S&P 500 profit growth is linked directly to AI compute demand. Semiconductor makers drive 42% of total S&P earnings growth, and major cloud providers and other hardware vendors add at least another 10%. Private AI labs and big tech are spending heavily on compute hardware, and private AI funding is a continuing tailwind for public chip and cloud earnings. Higher interest rates are a headwind for parts of the economy, but the speaker expects structural earnings growth in AI infrastructure to remain resilient, and recommends maintaining exposure to AI as one of three structural investment pillars.

“While higher interest rates create headwinds for parts of the economy, structural earnings growth in AI infrastructure is likely to remain resilient.”at 3:24