MW These underdogs are a big reason S&P 500 profit growth is the fastest in nearly 5 years

By Bill Peters

The companies that aren't in the 'Magnificent Seven' are starting to contribute more to earnings growth

The companies in the S&P 500 that are not part of the "Magnificent Seven" saw their fastest earnings growth in about five years.

Ever since Big Tech went all in on artificial intelligence more than three years ago, seven companies have done the heavy lifting for overall S&P 500 earnings growth. But more recently, the other 493 names in the index have started to pull their weight.

Collectively, the "Magnificent Seven" companies - Nvidia (NVDA), Microsoft $(MSFT)$, Alphabet $(GOOG)$ $(GOOGL)$, Amazon (AMZN), Meta Platforms (META), Apple $(AAPL)$ and Tesla $(TSLA)$ - put up earnings-per-share growth of 63.2% for the first quarter, according to a report from FactSet on Thursday. That marks their biggest gain since the second quarter of 2021, when the pandemic-era digital-demand boom was still intact.

All the other companies in the index, taken together, notched a 17.4% gain during the first quarter, when measuring actual results for companies that have already reported as well as estimates for those that haven't yet, according to FactSet. That's the highest earnings growth rate for those companies since the fourth quarter of 2021.

S&P 500 earnings overall are up 28.4% for the first quarter, when combining actual and estimated results.

Those results have landed as Wall Street parses the impact of higher gas prices on consumer spending, with the Iran war driving up the cost of oil and other materials and raising worries about an economic slowdown.

Some of the index's gains have come from areas that don't get the same attention as big tech - like the materials industry, amid a surge in demand for things like fertilizer and lithium. Elsewhere, FactSet's consumer discretionary sector benefited not just from Amazon (AMZN) but also from companies like carmaker Ford $(F)$, whose profits were helped by a big tariff refund.

Ten of the 11 industry sectors tracked by FactSet reported earnings growth, with growth for most of those in the double digits.

Four of the Magnificent Seven companies - Nvidia, Alphabet, Amazon and Meta - were still among the top five contributors to the S&P 500's earnings growth in the first quarter, according to FactSet. The fifth was memory-chip maker Micron Technology $(MU)$, whose influence on the index's profits has grown.

Nvidia offered an upbeat outlook last week, but that didn't appear to be enough for investors. Wall Street has left little room for error for a company worth more than $5 trillion.

Analysts at times have expressed concern over possible competition for Nvidia. They have also expressed concern about the costs of Big Tech's AI ambitions, as well as about demand, as the infrastructure buildout for the technology shapes up to be a multitrillion-dollar project. The race to build that technology has led to a memory-chip supply crunch that has threatened to drive up the costs of things like electronics.

'The K-shape has gotten sharper'

Some analysts have said the first quarter of 2026, which covered the two months of the year before the Iran conflict started, made for a slightly easier spending backdrop overall. But results and forecasts last week from some of the nation's biggest retailers have made investors cautious.

Home Depot $(HD)$ said consumers were healthy but were still reluctant to commit to bigger, more expensive home-improvement projects. Cosmetics maker e.l.f. Beauty (ELF) said it planned to cut some prices on products following signs of a drop-off in demand. Target (TGT) said its turnaround was working, but investors questioned how long the rebound might last.

Walmart $(WMT)$, meanwhile, said that while higher-income shoppers continued to spend, customers were putting less gas in their cars in an effort to save money.

"That's an indication of stress," Walmart Chief Financial Officer John David Rainey said on the retailer's earnings call. "I think it's possible that if fuel prices persist at this level, you may see some upward pressure on average unit retail prices."

Walmart's remarks about the costs for consumers were a bit more pointed than in prior quarters, Sarah Henry, a managing director and portfolio manager at Logan Capital Management, told MarketWatch. However, she also highlighted brighter sentiment from Ralph Lauren $(RL)$ and Williams-Sonoma $(WSM)$, whose quarterly results have shown that wealthier consumers, at least, are still shopping.

Retailers' results "suggest the K-shape has gotten sharper and more pronounced," she said, referring to an economic rebound in which wealthier consumers keep spending while everyone else pulls back.

She also noted that retailers' results have come against the backdrop of a 30% increase in grocery prices since before the pandemic. Higher interest rates, she said, have crimped bigger-ticket purchases that often require financing.

Given all that, she said, it was striking that companies' results weren't worse.

"Generally speaking, the strength of the earnings season overall has been remarkable," she said.

-Bill Peters

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May 25, 2026 10:00 ET (14:00 GMT)

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