US Stocks Aren't Getting Pricier. Earnings Are Catching Up
The S&P 500's forward P/E has slipped to 19x while third-quarter earnings are expected to grow about 30%. The market's driver is upward EPS revisions, not multiple expansion, but slower 2027 growth makes the formula harder.
Prices rose, but the P/E fell
The price-to-earnings ratio is price divided by earnings. If expected earnings grow faster than the price, the P/E can fall even as the stock rises. Take a $100 stock with expected EPS of $5: its P/E is 20x. If the price climbs 10% to $110 and expected EPS jumps 30% to $6.50, the P/E drops to about 16.9x.
Something similar is happening in the US market now. According to FactSet, the S&P 500's forward 12-month P/E is 19.0x. That is slightly below the five-year average of 19.8x and the 10-year average of 19.1x. It is also a sizable drop from 20.4x at the end of June. Stocks did not get cheaper because prices collapsed. They got cheaper because earnings forecasts caught up with prices.
| Metric | Value | Note |
|---|---|---|
| Q3 2026 revenue growth estimate | +12.3% | Up from 10.9% at end of June |
| Q3 2026 EPS growth estimate | +29.5% | Up from 26.7% at end of June |
| Forward 12-month P/E | 19.0x | Down from 20.4x at end of June |
The more important number is a 1.4% revision upward
As earnings season approaches, Wall Street usually cuts its numbers. Lowering expectations in advance reduces the risk of earnings misses. Over the past five years, quarterly EPS estimates fell an average of 2.2% during the quarter.
This time the pattern is reversed. The Q3 2026 S&P 500 EPS estimate rose 1.4% between June 30 and September 30. Of 116 companies that issued EPS guidance, 72, or 62%, gave positive guidance. That is well above the five-year average of 40%.
What revenue up 12% and earnings up 30% means
Revenue shows how much a company sold. EPS shows how much of that revenue reached shareholders after costs, margins, taxes and buyback effects. If EPS grows 29.5% while revenue grows 12.3%, large US companies are not merely growing. They are in a phase of turning that growth into higher profit.
That makes it inaccurate to treat the current rally as the same kind of multiple-expansion market as 2021 or 1999. The index level is high, and long-term yields are a burden. Still, based on the data confirmed so far, much of the price gain is explained by earnings growth.
The key shift in AI is the same
AI spending is increasingly judged less by how much is invested than by how much revenue and profit that money produces.
| Company | Earnings signals so far | Next numbers to watch |
|---|---|---|
| NVIDIA | FY2027 Q2 revenue of $96.2 billion, up 106% from a year earlier. Data center revenue of $89.0 billion, up 117%. Non-GAAP EPS of $2.22, up 120%. | Next-quarter revenue guidance of $108 billion, whether gross margin holds near 74%, Rubin supply bottlenecks. |
| Microsoft | FY2026 Q4 revenue of $90.0 billion, up 18%. Non-GAAP EPS of $4.74, up 23%. | Whether faster Azure growth keeps offsetting rising capex and depreciation. |
| Amazon | Q2 AWS revenue of $42.2 billion, up 37%. AWS operating income of $16.6 billion, up sharply from $10.2 billion a year earlier. | Whether high-margin AWS growth continues, and how quickly the trailing-12-month free cash flow deficit recovers. |
| Dell | FY2027 Q2 revenue of $47.0 billion, up 58%. AI server revenue of $16.4 billion. Full-year revenue guidance raised from $167 billion to $192 billion. | How fast the $95 billion AI server backlog converts to revenue, and hardware margins. |
| Oracle | FY2027 guidance of at least $90 billion in revenue and non-GAAP EPS of $8.10. | Actual revenue recognition on AI cloud contracts, borrowing and capex, free cash flow recovery. |
| Meta | Q2 revenue of $60.8 billion, up 28%, but EPS down 13%. 2026 capex outlook of $130 billion to $145 billion. | Whether ad-AI revenue gains outrun rising costs and reach operating income and free cash flow. |
Even among AI beneficiaries, the logic holding up each stock differs. At NVIDIA, Microsoft, Amazon and Dell, revenue growth flows directly into earnings growth and higher guidance. At Meta and Oracle, growth is strong but capex and cash flow need more proof. Apple looks more like a high-profitability quality compounder. Tesla is explained less by current EPS than by the value of future options such as autonomy, robotaxis, energy and humanoid robots.
Three questions that separate the good from the rest
In this market, the direction of earnings is more useful than the name on the ticker.
| Question | Good sign | Warning sign |
|---|---|---|
| Revenue growth | Growth holds or accelerates | Core business growth slows |
| Earnings leverage | EPS, operating income and margins improve faster than revenue | Revenue grows but costs grow faster |
| Next-year EPS | Wall Street estimates rise after the report | Next-year estimates fall despite good results |
Why 2027 is harder
Strong 2026 earnings growth cannot continue at the same pace forever. In a Reuters report citing LSEG data, S&P 500 earnings growth is expected to slow from about 35% in 2026 to about 15% in 2027. Fifteen percent is hardly a bad number. The problem is that the market's baseline has already moved very high.
In 2026, the fact that "AI capex is rising" was enough to lift the numbers of chip, server, network, power and cooling companies together. In 2027, the growth rate of spending itself is likely to slow. Within the same supply chain, the gap could then widen between companies that turn backlogs into revenue, protect margins and generate free cash flow, and those that do not.
Bottom line: The US market looks less like a cheap market and more like one where fast-growing earnings are supporting a high price. Picking out companies whose earnings keep rising next year may matter more than buying the index.
Insight Times Editorial Desk
