Q4 Earnings Show Strength Heading Into 2026

Key Takeaways

Corporate earnings improved during the fourth quarter as stocks capped a year marked by aggressive artificial intelligence (AI) spending, trade disruptions and other trends.

Leaders at many companies expressed a disciplined view during their earnings calls, but their outlook didn’t appear to be recessionary.

This quarter’s earnings highlights include:

• Companies in the S&P 500^® Index reported positive earnings growth led by information technology (IT), industrials and communication services.¹ Most firms beat quarterly estimates. Consumer discretionary, materials and health care were areas of weakness.

• European companies recorded stronger earnings growth compared to the previous quarter.² Materials, communication services and financials were leaders. Consumer discretionary, industrials and energy were the weakest sectors.

• In Japan, earnings growth was positive, with most companies surpassing estimates.³ Communication services, consumer staples and health care were areas of strength. Consumer discretionary, energy and utilities were the weakest.

• Emerging markets saw positive growth led by IT, industrials and real estate.⁴ Consumer discretionary, communication services and utilities were weakest.

Five Takeaways from Q4 Earnings Growth

1. Big Tech Accelerates AI Spending as Scrutiny Increases

The largest technology companies plan to spend even more on AI-related capital expenditures in 2026 and beyond, as shown in Figure 1.

Figure 1 | Hyperscaler Spending Fuels Big Tech Companies

Capital Expenditures ($ Billions)

^{Data from 12/31/2018 – 12/31/2025. Source: FactSet, Company Reports. Hyperscalers: Amazon, Alphabet, Meta, Microsoft and Oracle. Estimates are as of 2/19/2026 and are subject to change. Forecasts are not a reliable indicator of future performance.}

However, as AI spending rises, investors are increasingly focused on execution and monetization.

Microsoft shares declined after its latest earnings call, where executives reported higher-than-expected CapEx spending. Revenues beat expectations, but growth in its cloud business slowed.⁵ Microsoft execs also said demand is still strong.

Meanwhile, Meta Platforms also reported higher AI spending, but it also pointed to a 24% increase in revenue.⁶

Meta credited its AI investments with part of the win because its models have made its ads more efficient and effective.

2. Revenue Growth Continues Amid Softer Demand in Some Sectors

Overall, companies reported strong revenue growth for the fourth quarter of 2025. In fact, early results for the S&P 500 were the best since late 2022.⁷

Nearly all sectors enjoyed year-over-year growth, and three – information technology, communication services and health care – were headed for double-digit growth.

At the same time, we also spot potential signs of slowing growth.

Through mid-February, 74% of reporting companies had earnings-per-share that beat expectations, slightly below the five-year average of 78% and 10-year average of 76%.⁸

A growing number of companies are experiencing lower sales volumes, particularly in the consumer discretionary sector.

In some cases, price increases are helping offset softer demand. For example, Procter & Gamble and Mondelez have reported higher sales or revenues despite lower volumes.⁹

3. Earnings Growth Improves for Mid- and Small-Caps

After a period of relatively flat or declining growth, the earnings of small- and mid-size firms are starting to match the same upward trajectory of larger stocks. See Figure 2.

Figure 2 | Earnings Growth Rates Are Synchronizing Across Market Capitalization

Cumulative Change in Analysts’ Next-12-Month Earnings Estimates

^{Data from 1/3/2022 to 2/26/2026. Source: Bloomberg. Large-caps represented by the S&P 500® Index. Mid-caps represented by the S&P MidCap 400® Index. Small-caps represented by the S&P SmallCap 600® Index. Past performance is no guarantee of future results.}

We think there are a few reasons this is happening.

• Small- and mid-caps tend to have less exposure to international markets, so they might feel less pain from currency shifts. Reshoring efforts could help them, too.

• Recent interest rate cuts may benefit smaller firms more because they often have more floating-rate and short-term debt.

• Small- and mid-caps logged weaker earnings growth in 2024 and 2025. They may enjoy more favorable year-over-year comparisons.

4. Currency Shifts Complicate Results for Multinationals

Weakness in the U.S. dollar has created a new challenge for some firms, particularly non-U.S. companies that generate significant revenue in the U.S.

When they repatriate their earnings, moving them from U.S. dollars to a currency that has appreciated against the dollar, their results can look weaker than expected.

SAP, the enterprise software firm, noted that it reports results on a constant-currency basis, which adjusts for currency fluctuations.¹⁰ Doing so provides a clearer picture of true demand, the company argues.

Look at its cloud business. Using a constant-currency analysis, the value of that backlog rose 30% in 2025. Without accounting for currency differences, the increase was only 22%.¹¹

It’s important to note that currency shifts can also act as a tailwind for some companies.

A recent analysis showed that S&P 500 firms that generated more revenue outside the U.S. did better than those whose revenue was mostly U.S.-based.¹²

5. European Banks Look to Build on Strong 2025

European banks experienced robust growth last year, as the EURO STOXX Banks Index rose roughly 76%.¹³

Societe Generale, for example, described 2025 as a “defining year” that set new records for revenues and group net income.¹⁴ BNP Paribas reported a “sharp acceleration” in the results for the fourth quarter. It also upgraded its outlook for 2028.¹⁵

The European Central Bank has cut interest rates, but they’re still above pre-COVID levels, supporting banks’ net interest income.

Several banks have also taken steps to improve their operations, and they enjoy good credit quality and capital positions.

Societe Generale has spent the last few years working to improve efficiency and profitability. BNP Paribas has cut its cost-income ratio by several percentage points since 2021 and is undertaking a new structural transformation plan.

Earnings Forecast: Growth Expected Across Regions in 2026

Analysts are expecting S&P 500 earnings growth of 10.98% in the first quarter and 14.25% for 2026 overall.¹⁶

Meanwhile, analysts expect emerging markets to deliver earnings growth of 17.45% in the first quarter and 26.88% for the year.¹⁷

Forecasts call for Japanese earnings growth of 36.44% in the first quarter and 10.59% for the year.¹⁸ In Europe, analysts predict earnings growth of 0.02% for the first quarter and 9.69% growth for the full year.¹⁹