Why did the stock price fall despite earnings beating expectations? Goldman Sachs: Investors are focusing on something else.

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Although American companies are delivering a strong earnings season, investors don’t seem to be buying it. The share prices of companies that have exceeded analysts’ expectations have not received the expected boost.

According to Goldman Sachs’ analysis, investors are shifting their attention from already-released strong results to a more uncertain outlook, focusing especially on whether massive AI investments can translate into real profits. This cautious sentiment has made the historical pattern of “stocks rallying on earnings beats” clearly fail this season.

Latest data shows that among S&P 500 constituents that have reported earnings, about two-thirds have surpassed market expectations, driving overall third-quarter profit growth to 8% year-over-year, higher than the previous forecast of 6%. However, following their earnings releases, these companies’ share prices have, on average, only outperformed the S&P 500 by 32 basis points, far below the typical historical level of about 98 basis points.

Goldman’s portfolio strategy team, led by David Kostin, believes that against the backdrop of continued volatility from China-US trade tensions and the recent US regional bank credit issues, investors are more concerned about future corporate profitability than ever. In other words, the market focus has shifted from “how well you’ve performed” to “how well you can perform in the future.”

“Broken” Earnings Season: Strong Results Struggle to Lift Stock Prices

The current earnings season has been particularly impressive. According to Goldman Sachs, among S&P 500 companies that have reported, about two-thirds have exceeded expectations. In terms of frequency of earnings surprises, this is one of the best reporting seasons this century, second only to the post-pandemic economic reopening at the end of 2020. More notably, this robust growth has been jointly driven by sales and profit margins.

However, market reaction has been unusually lackluster. Data shows that companies reporting better-than-expected earnings have seen their post-earnings stock performance noticeably lag the historical average. Goldman points out that investors may have already anticipated these strong results, and the previous consensus forecast for 6% profit growth was seen as “too conservative” or “unrealistically low.” The narrowing of this expectation gap is one reason for the muted response in share prices.

Why have strong earnings failed to ignite market enthusiasm? Goldman believes the answer is that investors have already looked beyond Q3 results and are focusing ahead. Strategist David Kostin and his team noted that in an environment where macro uncertainty persists, investors are more focused than ever on companies’ forward guidance.

The report specifically mentions that market volatility triggered by trade frictions and regional US bank credit crises has heightened investor concerns about future economic and corporate profit prospects.

AI Spending in Focus, But Profitability Is Key

Goldman’s report reveals another key market focus: AI capital expenditures by large tech companies. Data shows that “hyperscale” companies’ capex has consistently surpassed the expectations of investors and analysts. For example, at the beginning of 2025, the market forecasted $314 billion in 2026 capex for these companies, but that figure has now soared to $518 billion.

The report raises a crucial observation: “Investor acceptance of capex growth depends on the strength of profit growth and perceived ability to monetize AI investments.” Goldman notes that Alphabet’s stock gained on raising its 2026 net profit guidance, while Meta Platforms, with relatively flat 2026 guidance, saw its stock price drop post-earnings.

Despite investor caution, there are still some positive signals at the corporate level. Among 49 companies that have issued Q4 guidance, nearly half exceeded analyst expectations. This trend has prompted the market to raise its 2026 S&P 500 aggregate EPS forecast by 2% to $308.

In addition, the outlook for AI applications also shows positive momentum. Since the beginning of this month, half of all companies reporting earnings have mentioned the potential of AI to improve efficiency, a modest increase from Q2.

Risk Disclosure and DisclaimerThe market carries risks; investment requires caution. This article does not constitute personal investment advice, nor does it take into account specific users’ particular investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions herein fit their specific situations. Investing on this basis is at your own risk. ```