AI Fuels Stock Market Rally; Earnings Now Giving It Staying Power

After a year dominated by artificial intelligence (AI) headlines, Wall Street’s bull case is shifting toward something more fundamental to stocks — earnings power that’s beginning to broaden beyond Big Tech, Allie Canal reported for Yahoo Finance.

The so-called Magnificent Seven are expected to post 23% net income growth for the third quarter, compared with 12% for the rest of the index. (Photo: New York Stock Exchange Facebook)

Morgan Stanley, UBS, and other major firms are pointing to a clear throughline this earnings season: Profits are strong, margins are stabilizing, and growth, while still concentrated in AI-heavy tech, is beginning to spread.

“There are clear signs that the earnings recovery is underway and pricing power is firming,” Morgan Stanley equity strategist Mike Wilson wrote in a client note.

His team’s data shows the so-called Magnificent Seven are expected to post 23% net income growth for the third quarter, compared with 12% for the rest of the index.

“We see incrementally positive developments for breadth to eventually improve,” Wilson added, as revisions trend higher and revenue beats remain well above historical norms.