JPMorgan Says AI Boom Is Driving A ‘Rare’ Profit Cycle — But There’s A Big Risk Investors Should Watch
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JPMorgan said its research team has continued to raise its near-term profit forecasts throughout the year, although the pace of upward revisions has started to cool.
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In the U.S., the firm expects operating profits to rise 27% this year, up sharply from its initial 13% forecast at the start of 2026.
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JPMorgan said the strength extends well beyond the biggest AI beneficiaries, with companies outside AI and energy expected to deliver roughly 10% annual profit growth this year and next.
JPMorgan Asset Management sees an unusually strong global profit cycle taking shape, with corporate earnings expected to grow nearly 30% in 2026 and another 20% in 2027.
The firm says the artificial intelligence investment boom remains the biggest driver of that growth, with spending on AI infrastructure expected to remain robust for years. But as the trade gets bigger, JPMorgan is also watching rising funding costs and growing reliance on debt.
JPMorgan Sees A 'Rare' Profit Cycle
JPMorgan said its research team has continued to raise its near-term profit forecasts throughout the year, although the pace of upward revisions has started to cool as investors have increasingly priced in the impact of the AI investment boom.
In the U.S., the firm expects operating profits to rise 27% this year, up sharply from its initial 13% forecast at the start of 2026. JPMorgan said the strength extends well beyond the biggest AI beneficiaries, with companies outside AI and energy expected to deliver roughly 10% annual profit growth this year and next.
"We have rarely seen such a strong profit cycle," JPMorgan said.
Energy has also emerged as a major source of earnings growth, with sector profits rising more than 80% this year. Meanwhile, nearly 90% of S&P 500 companies are growing their earnings, JPMorgan said, which is a level near the top of the historical range.
That broader earnings growth gives investors more opportunities to diversify beyond the crowded AI trade, particularly after years of extreme concentration in technology stocks.
AI Boom Is Creating A Funding Risk
JPMorgan remains constructive on AI and expects robust spending to continue well into 2028. But the firm warned that the market has already largely priced in another strong year of AI investment in 2027, while the cost of funding that spending is becoming harder to ignore.
"First, the market has already largely discounted another strong year of investment spending in 2027," JPMorgan said. "Second, we're beginning to see the strains of funding all this AI growth."
Hyperscalers are increasingly turning to debt markets as AI infrastructure spending outpaces cash flow, JPMorgan said. At the same time, higher interest rates are making that borrowing more expensive.
The firm noted that bonds and equities of some of the most aggressive AI spenders, including neocloud companies, have recently come under pressure.
JPMorgan isn't abandoning the AI trade. Instead, it says investors should become more selective.
"We remain constructive on the AI theme but with a strong preference for higher quality names," the firm said, adding that it is "carefully managing overall AI exposures and individual stock risks."
That caution could also create an opening for stocks that have been left behind by the AI rally. JPMorgan said the historic collapse in momentum during July could favor previous laggards, particularly software companies that were treated as "AI losers."
"The biggest lesson is that the laggards from the momentum phase tend to perform very well," JPMorgan said.
During the after-hours session on Friday, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, gained 0.19%; the Invesco QQQ Trust ETF (QQQ) rose 0.33%; and the SPDR Dow Jones Industrial Average ETF Trust (DIA) edged up by 0.1%. Retail sentiment on Stocktwits toward the S&P 500 ETF was in the 'bullish' territory at the time of writing.
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Stocktwits News Desk has no position in any of the stocks mentioned in this article. StockTwits' news team content is for informational purposes only and is not intended as investment advice. For more, see our editorial policy . This article was originally published on StockTwits .
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