U.S. Stocks Q1 Earnings Surprised Above Expectations, TECH+ Leads the Way

Overview

In its early May briefing, UBS summarized the U.S. equity earnings situation for the first quarter of 2026: As of the reporting date, 73% of S&P 500 companies by market cap had disclosed their results. Overall EPS is expected to grow by 28.4% YoY, significantly higher than the initial consensus of 27.6%. The earnings surprise rate (the proportion of companies whose actual earnings exceeded expectations) reached 19.3%, with 79% of companies reporting better-than-expected results. Growth was primarily driven by the TECH+ sector, whose EPS growth reached 59%, while excluding the Big 6, other markets grew by only 16.9%. The report notes that, apart from TECH+ and Materials, other sectors lagged behind overall earnings growth, with Energy remaining a drag.

Core views

Demand Side: TECH+ revenue rose 25% YoY, with the Big 6 TECH+ revenue up 24.9%, driving overall revenue growth of 10.9%. Supply Side/Profit Margins: TECH+ benefited from significant operating leverage, with profit margins expanding by 33.8 percentage points, pushing EPS growth well above revenue growth. Sector Differentiation: - Materials and Financials saw EPS growth rates of 36.4% and 24.3%, respectively, following closely behind; - Energy, weighed down by oil prices and costs, saw EPS decline by 3.3% YoY; - Non-cyclical, Telecom, and Healthcare sectors showed almost no growth or even negative growth. Stock-Level Analysis: Palantir's U.S. commercial revenue doubled, with full-year guidance raised to $7.65–$7.66 billion; Vertex’s earnings exceeded expectations, maintaining full-year revenue guidance at $12.95–$13.1 billion; META’s actual EPS growth reached 62%, significantly higher than the expected 5.5%. Valuation and EPS Revisions: Over the past three months, the overall 2026 S&P 500 EPS forecast has been revised upward by 9.8%, with the tech sector revised up by 16.6% and Energy sector by 47%, indicating that earnings momentum is concentrated in tech and cyclical recovery sectors.

Analysis framework

UBS adopted a ‘layered decomposition’ approach: 1. First, aggregate earnings forecasts for disclosed and undisclosed companies weighted by market cap to form the overall EPS growth rate; 2. Then, break down by industry (TECH+, Energy, Finance, etc.) to compare weighted growth rates with median growth rates, identifying concentration risks; 3. Cross-validate using ‘earnings surprise rate’ and ‘magnitude of earnings revision’: sectors with high surprise rates and large subsequent revisions are considered to have the strongest earnings momentum; 4. Use historical patterns to adjust earnings forecasts for remaining undisclosed companies, ultimately arriving at a full-year growth rate forecast of 28.4%.

Methodology notes

• Industry/sector analysis frameworkVolume-price decomposition

  Decompose EPS growth into ‘revenue growth × profit margin change × buyback effect’

  UBS uses revenue growth to represent ‘volume’, profit margin change to represent ‘price’, and considers the dilutive effect of share buybacks to explain why TECH+ EPS growth far exceeds revenue growth—mainly due to a sharp expansion in profit margins.

• Quantitative/factor/portfolio theoryEarnings Surprise Analysis

  Use earnings surprise rate (Beat Rate) and subsequent earnings revision magnitude to gauge sector momentum

  The report tracks the proportion of disclosed companies whose earnings exceeded expectations and observes how much the market subsequently revises upward the full-year earnings outlook. Sectors with higher surprise rates and faster subsequent revisions are seen as benefiting both from short-term capital flows and mid-term fundamentals.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• META Platforms Inc (META)

  Core member of Big 6 TECH+, with significantly better-than-expected earnings

  Strengths

  Resilient ad revenue, effective AI investments, actual EPS growth of 62% far exceeding expectations

  Comparison

  Among the Big 6, its earnings surprise magnitude ranks second only to GOOGL and AMZN

• Palantir Technologies (PLTR)

  Exploding demand for AI in U.S. business and government

  Strengths

  U.S. revenue doubled, full-year guidance revised upward

  Weaknesses

  U.S. commercial sales slightly below expectations, stock price still down 1% on the day

• Vertex Inc (VERX)

  Representative of the software application sector, with earnings exceeding expectations

  Strengths

  Adjusted EPS of $4.47, higher than the expected $4.30

Key data

• S&P 500 Q1 EPS Growth Forecast28.4%Revised up 0.8 percentage points from the initial consensus of 27.6%
• Earnings Surprise Rate19.3%Proportion of disclosed companies whose earnings exceeded expectations
• TECH+ Sector EPS Growth59.3%Big 6 TECH+ contributed 61.3%, while other TECH+ contributed 55.0%
• Palantir U.S. Revenue Growth104%Full-year revenue guidance raised to $7.65–$7.66 billion
• META Actual EPS Growth62.2%Significantly higher than the market expectation of 5.5%

Impact & implications

UBS believes that, in the short term, TECH+'s earnings surprises and continued upward revisions will continue to support overall U.S. stock performance, but sector differentiation is intensifying: capital may further concentrate on tech and materials leaders, while Energy, Telecom, and non-cyclical sectors face dual pressures of earnings downgrades and valuation compression. In the medium term, it’s important to watch whether the drag on non-tech sectors from energy prices and interest rate changes eases.