S&P 500 Earnings Growth Slows Amid Rising AI Costs and Tariff Pressures

The S&P 500's earnings growth has decelerated to 8.8% year-on-year for Q3 2025, down from over 13% in the first half of the year. Rising costs associated with artificial intelligence (AI) investments and $93 billion in US tariffs are squeezing corporate profits. While AI megacaps like Apple, Nvidia, and Microsoft continue to drive market gains—posting 26.6% earnings growth in Q2—smaller firms face mounting pressure to demonstrate ROI on AI spend.

Investors are scrutinizing valuations as the index trades at 23x forward earnings, well above its 10-year average. Demand is growing for standardized metrics to benchmark AI payoffs, with third-party evaluation tools gaining traction. The market's reliance on the "Magnificent 7" tech giants highlights growing divergence—their earnings grew nearly seven times faster than the rest of the S&P 500 last quarter.