US Equities: Riding the AI Capex Cycle via US Financials
US earnings focus: Sensitivity of corporate earnings to forward valuations. Market expectations are high as we head into the 2Q26 earnings season, with consensus forecasting US earnings growth of c.2...
Chief Investment Office - Hong Kong version17 Jul 2026
  • Consensus expectations of c.27% y/y earnings growth in 2Q26 are triggering concerns of an earnings bubble in the S&P 500
  • Earnings concerns are unfounded, as the robust momentum is underpinned by the AI capex cycle, which benefits both tech and non-tech companies
  • US financials delivered strong 2Q26 earnings, with AI-related catalysts buoying both trading activity and investment banking fees
  • Ride the broadening rally via US financials; deregulation is expected to ease capital constraints, support loan growth, and unlock advisory fee opportunities
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US earnings focus: Sensitivity of corporate earnings to forward valuations. Market expectations are high as we head into the 2Q26 earnings season, with consensus forecasting US earnings growth of c.27% y/y in 2Q26. Paradoxically, the robust outlook is fuelling concerns of an "earnings bubble" in the US and the impact it could have on valuations should companies fail to deliver on the earnings front. The US currently trades at 20.3x forward P/E, premised on 26.8% EPS growth on a rolling 12-month basis. As an illustration, a 5 %pts disappointment in the earnings forecast would bring forward P/E to 21.1x, while a 10 %pts disappointment would raise valuations to 22.0x, approximately 1 SD above the 10-year average.

Concerns of a US earnings bubble unfounded; AI capex cycle underpinning robust momentum. Prevailing market concerns of a US "earnings bubble" are unfounded in our view, as the robust momentum is underpinned by the multi-year AI capex cycle. Apart from technology companies, the latter is also positive for non-tech plays. Case in point: US financials.

The sector delivered stellar earnings results in 2Q26. While trading played a key role in driving revenue growth, investment banking activities also contributed to the upside as increasing funding needs from AI capex translate to higher equity and debt capital market activity. According to PR Newswire, the technology sector alone accounted for c.32% of US ECM issuance deal value in 1H26. JPMorgan, for instance, saw trading revenue grow 35% y/y to USD12.1bn, while investment banking fees also surged 30% y/y.

Ride the broadening rally through US financials. The US equity rally is broadening, as evidenced by the recent outperformance of S&P 500 Equal Weight Index over its market-cap-weighted counterpart and the tech-heavy Nasdaq Composite. The recent price action suggests investors are increasingly rotating from tech to non-tech plays. To ride this broadening trend, we reiterate our overweight stance on US financials. Beyond robust 2Q26 earnings, we believe the following factors will drive sustained profitability for the sector:

  1. Net Interest Income (NII): Mar 2026 revisions to the Basel III Endgame will lower capital requirements for the largest US banks, easing balance sheet constraints and increasing lending capacity. This should support stronger loan growth and underpin NII expansion. Furthermore, the Fed has turned increasingly hawkish compared to the start of the year, driven by persistent core inflation and higher energy prices. The market is currently pricing in c.100% probability of one additional rate hike and a 9.2% probability of a second hike by year-end. This higher-for-longer rate environment will, in turn, drive Net Interest Margin expansion, providing support for earnings.
  2. Advisory fee income: The Trump administration’s pro-business stance may include a softer antitrust approach and faster approval timelines. This could, in turn, unlock pend-up demand for capital market activity, driving advisory fee income higher. According to Institute of Mergers, Acquisitions, and Alliances, the value of announced 2026 US M&A transactions in North America is expected to see a robust growth of c.25%, rising from USD3.2tn in 2025 to USD4.0tn in 2026.


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