U.S. semiconductor companies are expected to post slower third-quarter profit growth than in the previous quarter, but S&P 500 profits are forecast to rise by nearly 31% from a year earlier on demand for investment in artificial intelligence (AI). As big tech rapidly expands AI investment, market attention is focused on whether that spending can translate into actual profits.

On Oct. 9, blockchain outlet Cryptopolitan reported that London Stock Exchange Group (LSEG) expects third-quarter profits at U.S. semiconductor companies to rise about 136% from a year earlier. That would be lower than the roughly 158% gain in the second quarter. Growth has slowed, but it is still far above the S&P 500 average.

Along with the technology sector, three big technology companies — Alphabet, Amazon and Meta Platforms — are expected to account for about two-thirds of the S&P 500's profit increase this quarter. Demand for AI infrastructure and related services is seen as a key driver lifting corporate earnings.

Still, the pace of upward revisions to earnings forecasts is gradually weakening. Nick Raich, CEO of research firm Earnings Scout, said the momentum for upward revisions to corporate earnings estimates has started to slow. He likened the AI infrastructure investment trend to a car slowing from 150 miles per hour to 100 miles per hour. Growth continues, but it is not as steep as before.

That does not mean the semiconductor industry has turned down. Raich said Micron Technology's recent results were still strong. Micron last month gave guidance for the current quarter above market expectations, and customer commitments under long-term supply agreements also reached $32 billion.

Major semiconductor companies in Asia also showed improving results driven by AI demand. Samsung Electronics guided to third-quarter operating profit of 107.4 trillion won, supported by demand for high-bandwidth memory (HBM) and other products. That would top the market estimate of 106.1 trillion won and, if confirmed, would set a record high for a fourth consecutive quarter. Samsung Electronics is scheduled to release its full earnings on Oct. 29.

Taiwan's TSMC also said September revenue came to 511.86 billion Taiwan dollars, up 54.6% from a year earlier. Third-quarter revenue is estimated at 1.49 trillion Taiwan dollars, and it was also shown to have exceeded the top end of the company's guidance.

The earnings outlook for the broader S&P 500 also remains strong. LSEG data showed blended third-quarter earnings growth is expected at 30.6%. That would be below the second quarter's 53.7%, but the outlook has been revised up sharply compared with the start of the year. The forecast for third-quarter earnings growth rose to 21.3% on April 1 from 15.1% on Jan. 1, and to 27.6% on July 1.

Of 19 S&P 500 constituents that have reported early results so far, 84.2% beat market expectations. Revenue growth was tallied at 11.8%. Future growth is expected to slow gradually. Fourth-quarter earnings growth is forecast at 28.9%, easing to 19.8% in the first quarter of 2027.

Second-quarter earnings growth marked the highest level since 2021. Even excluding valuation gains from Alphabet and Amazon's AI-related equity investments, the increase was estimated at about 35%. The market has also assessed that AI's impact on corporate profits is spreading beyond a handful of technology companies to the broader index.

Market focus is now turning to the start of the earnings season. Major companies are set to release results starting this week with JPMorgan and Goldman Sachs. The S&P 500 recently hit a record high on the back of strength in technology stocks, but whether earnings can continue to support the share-price rally is another question.

In particular, the balance between expanding AI investment by big tech and profitability has emerged as a key variable. Planned capital spending by Microsoft, Alphabet, Amazon, Meta Platforms and Oracle surged to about $730 billion in July from about $485 billion in January. That reflects rapidly rising investment in AI data centres and related infrastructure.

The burden of investment is also becoming visible. Alphabet posted negative free cash flow of $5.9 billion in the June quarter, affected by an increase in AI-related costs and other factors. It also raised its 2026 capital spending outlook to a range of $195 billion to $205 billion.

Ultimately, the key question is whether AI demand can continue to drive earnings growth for semiconductor companies and the S&P 500. Even if semiconductor profit growth slows, rapid growth may still be sustained, but investors are expected to scrutinise not only how much money is being poured into AI but also how well that spending translates into sustainable profits and cash flow.