Barclays expects above-trend S&P 500 earnings growth to persist into FY27

Overview

This U.S. equity strategy report examines whether the current surge in S&P 500 earnings is sustainable. Barclays expects growth to normalize from FY26's exceptional level but remain materially above long-term norms in FY27, led by an extended AI investment cycle and increasingly broad-based earnings strength.

Core views

Barclays raised its FY26 S&P 500 EPS estimate to $365 from $337 and its FY27 estimate to $414 from $389. The FY26 estimate implies 31% year-on-year growth, while FY27 implies 13.4% growth. Although the institution recognizes that FY26 creates a demanding comparison base, it does not expect FY27 growth to fall below trend. Its estimate is above the 35-year median annualized S&P 500 EPS growth rate of 10%, and, if realized, would produce the first four-year stretch of double-digit EPS growth since the mid-2000s. Consensus realization would also lift three-year EPS CAGR to nearly 19% in 2027, the highest since 2012. AI remains the central earnings engine in Barclays' view. It forecasts 25% year-on-year FY27 EPS growth across mega-cap technology and the wider technology ecosystem. The report argues that a slowing growth rate in hyperscaler capex would not mean weaker demand: compute requirements for training and inference are expanding, and major buyers have already secured capacity well into 2027. Barclays therefore expects total spending to continue rising meaningfully from an already elevated base. Its analysts estimate capex of more than $1.1 trillion next year and more than $1.4 trillion in 2028, indicating upside to consensus capex forecasts over the next two years. The report also sees memory pricing as a key support for technology earnings. DRAM spot prices have risen sixfold over the preceding 12 months, while NAND flash pricing has also increased amid tighter supply. Barclays acknowledges investor concern that this pricing may not persist into 2027, but cites commentary from large memory buyers: Apple attributed recent gross-margin pressure to higher memory costs expected to continue near term, HP expects memory and storage to occupy a larger share of bill of materials, and Samsung indicated that pre-booked demand points to a wider memory supply-demand gap in 2027 than in 2026. Barclays interprets these signals as support for continued pricing strength. Financing is another element of the AI durability thesis. The report estimates that externally financed AI infrastructure, including dedicated infrastructure SPVs, could represent more than 20% of total industry capex in 2027, versus 6% previously. In Barclays' reasoning, this reduces reliance on hyperscaler balance sheets and expands the capital pool available for compute deployment, lengthening the AI investment runway. Beyond AI, Barclays finds that earnings momentum is broadening. In 2Q26, EPS growth exceeded long-term averages in most major non-technology sectors; Energy, Materials, Financials and Utilities joined Technology and Industrials in above-trend growth. Operating margins improved year on year in every sector except Healthcare, where one-time acquisition charges affected quarterly results. Operating leverage increased broadly, with Technology, Energy and Financials leading. Positive FY27 revision breadth is also above historical averages across Technology and several non-technology groups, including Financials, Healthcare, Industrials and Consumer Discretionary. On the macro side, Barclays expects U.S. GDP growth to moderate modestly in FY27 as high rates and slower consumption weigh on activity. However, it sees manufacturing returning to expansion, business investment holding up, and a larger share of capital spending being driven by structural capacity needs across infrastructure, manufacturing, energy and supply-chain resilience. Consumer affordability pressures remain the clearest caution because mortgage rates, vehicle-financing costs and elevated prices constrain purchasing power. Still, Barclays expects consumption to slow rather than stall, supported by a healthy labor market and lower CPI and PCE inflation through 2027 as energy-related price pressure fades. The resulting mix leaves investment as the main growth driver while a resilient consumer helps sustain the expansion.

Analysis framework

Barclays combines bottom-up S&P 500 EPS estimates and sector revision breadth with comparisons against long-term earnings-growth history. It tests the durability of the AI earnings cycle through compute demand, hyperscaler capex, memory supply-demand conditions, buyer commentary and alternative infrastructure financing, then assesses whether the earnings story is spreading through sector-level growth, margins, operating leverage and macro conditions.

Methodology notes

• Industry AnalysisSupply-demand framework

  AI compute and memory supply-demand analysis

  The report assesses whether compute demand continues to exceed supply and whether constrained memory supply can sustain higher DRAM and NAND prices into 2027.

• Corporate Fundamentals and FinanceOperating and Financial Leverage Analysis

  Operating leverage and margin expansion across sectors

  Barclays uses changes in operating margins and operating leverage to judge whether earnings growth is broadening beyond technology.

• Other

  Earnings revision breadth

  The report compares the share and breadth of positive FY26 and FY27 EPS revisions across sectors with historical averages to assess the durability and breadth of earnings momentum.

Key data

• FY26 S&P 500 EPS estimate$365Raised from $337; implies 31% year-on-year growth.
• FY27 S&P 500 EPS estimate$414Raised from $389; implies 13.4% year-on-year growth and matches Street estimates.
• FY27 technology EPS growth forecast+25% Y/YApplies to mega-cap technology and the wider technology ecosystem.
• Three-year S&P 500 EPS CAGRNearly 19% in 2027Would be the highest since 2012 if consensus is realized.
• AI industry capexOver $1.1T next year and over $1.4T in 2028Barclays estimates imply material upside to consensus capex forecasts.
• External AI infrastructure financingMore than 20% of total industry capex in 2027Compared with 6%; includes dedicated infrastructure SPVs.
• DRAM spot prices6x over the last 12 monthsReflects ongoing supply constraints.

Impact & implications

Barclays concludes that FY27 earnings growth should decelerate from FY26's unusually strong pace without reverting to a weak or below-trend outcome. Its central implication is that AI-related capex, constrained component supply and expanding financing channels can support technology profitability, while stronger margins and revisions across other sectors make aggregate S&P 500 earnings momentum less dependent on a narrow group of AI beneficiaries.

Risks

• Hyperscaler capex growth could slow more sharply than Barclays expects, weakening the AI investment backdrop.
• Memory pricing may prove less durable than expected in 2027 despite current supply constraints.
• Consumer affordability pressure from mortgage rates, vehicle-financing costs and elevated prices could weigh more heavily on consumption.
• FY26's exceptional earnings growth creates difficult year-on-year comparisons for FY27.