Corporate America has never been this profitable

AI is lifting almost everything in sight, from minting new millionaires at a historic pace to vaulting an entire country up the ranks of the world’s biggest stock markets. And with the US sitting at the center of that boom, Corporate America is squeezing more profit out of every dollar it brings in than ever before.

In the first quarter, S&P 500 companies kept nearly $0.15 of profit for every dollar of revenue, according to FactSet — the highest figure recorded since the data provider began tracking the metric in 2009, and more than double the long-run historical average of around $0.06 going back to 1946. 

Much of it comes down to the index’s new center of gravity: a handful of unusually profitable tech giants. The Magnificent 7 alone account for more than a third of the S&P 500’s market value, and they’re punching far above their weight on earnings, posting 63.2% earnings growth in Q1, nearly 4x the rate of the other 493 companies.

Bloomberg data through June 4 shows the trend holding, with both operating and net profit margins at their highest in at least two decades — meaning companies are making more from their core businesses, as well as keeping more for shareholders after costs, interest, and taxes are paid.

Both measures have climbed sharply back from the depths of the 2008 financial crisis and the shock of Covid, with the latest leg ripping higher on strong AI demand, blockbuster megacap earnings, and years of sweeping layoffs and “efficiency” pushes that have become a staple of Big Tech earnings calls. 

Still, the profit boom comes with concentration risk. Goldman Sachs warned last week that AI infrastructure beneficiaries are expected to account for roughly half of all S&P 500 earnings growth this year — leaving more of the outlook riding on whether the massive AI build-out eventually translates into durable profits.