SpaceX Just Showed Us What’s Coming for S&P 500 Earnings

Editor’s Note: Last night, SpaceX reported third-quarter earnings and revenue that blew past Wall Street’s expectations. Revenue jumped 161% to $14.6 billion. Its AI business, which the company calls “Super Intelligence,” grew roughly ninefold to $7.6 billion and is now SpaceX’s largest segment. CEO Elon Musk also said the company could reach an annual revenue run rate of $500 billion to $1 trillion by the end of next year. Much of that optimism comes from demand for its data center capacity.

That’s a big tell for what comes next. If demand for compute is running this hot, other hyperscalers are likely to post similar results and upbeat outlooks. So are the companies supplying the chips, power, and equipment for the data center buildout. That should push S&P 500 earnings estimates higher, and it boosts my conviction that the index can finish the year near 8,400.

In late September, I laid out why the market isn’t irrational, it’s early. Read my analysis below for the earnings math behind that call.

The Market Isn't Irrational, It's Early

• Invest for what S&P 500 earnings growth looks like a year down the road.

• Wall Street expects CY2027 earnings of $417.

• That gets me to a year-end target of 8,340.

Markets don't wait for the numbers to catch up. They're already pricing the next leg higher…

Many of the pundits on financial networks like CNBC and Bloomberg never cease to amaze me. Time and again, they rant and rave about how the stock market isn’t connected to the real world. They can’t understand why stocks and indexes are rising while the world around them is steeped in uncertainty. These talking heads get so caught up in gloom‑and‑doom scenarios that they can’t see the forest for the trees.

You see, great investors aren’t focused on the moment. They’re discerning what the environment will look like a year, or further, down the road. They know that today’s uncertainty eventually gives way to tomorrow’s clarity. And when predictability returns, they’re selling to the same people who doubted the rally 12 months earlier.

We’re three quarters of the way through the year, the market keeps grinding higher, and the skeptics keep asking why. They can’t seem to grasp that the artificial‑intelligence capital‑expenditure cycle is still accelerating. SemiAnalysis estimates more than $11 trillion in total AI spending by 2030. That kind of investment expands margins, boosts revenue, and lifts earnings power across the economy. The naysayers are missing what’s right in front of them.

Third‑quarter earnings season is around the corner, and analysts have been raising their forecasts. FactSet shows S&P 500 calendar‑year 2026 earnings estimates rising from $311 to $341 over the last six months. Expectations for 2027 have climbed from $358 to nearly $417. Based on those numbers, the S&P 500 could rally close to 8% by year‑end.

But don’t take my word for it, let’s look at what the data’s telling us…

Coming into the second quarter releases, analysts were conservative in their earnings expectations. At the start of July, they predicted S&P 500 companies would report combined growth of 23%. That forecast came up short. With earnings now in the rearview mirror, growth more than doubled to 52%...

A big driver of the upside remains AI, and this quarter the payoff showed up in more places. A record 331 S&P 500 companies, or 67%, mentioned AI on their Q2 earnings calls. That included 91% of Financials, so adoption is still spreading well beyond Tech. The biggest boost to earnings, though, came from the rising value of AI investments. Amazon and Alphabet together booked roughly $150 billion in investment gains, including $53.4 billion at Amazon, mostly from its stake in Anthropic.

That spending keeps driving demand and margins for the big technology companies. Amazon Web Services grew 37%, its fastest pace in 18 quarters. Microsoft's Azure grew 43%, and Google Cloud jumped 82%. Nvidia's data center sales more than doubled to $89 billion. CEO Jensen Huang said, "compute is revenue. And demand is accelerating." Supply still can't keep up. Microsoft CFO Amy Hood said, "Demand continues to surpass supply," and Amazon raised its 2026 capital spending plan to $220 billion. Their earnings are still limited by how fast they can build capacity to meet customer demand.

The Technology and Financials sectors make up around 48% of S&P 500 earnings. Adding Communication Services, which includes Alphabet and Meta, brings that to about 60%. That’s important because the companies with the greatest ability to drive the index’s earnings higher are positioned for margin expansion. In other words, the broader index’s expectations need to go up.

As I said at the top, analysts had predicted calendar year 2026 earnings of $311 and calendar year 2027 earnings of $358. Now, those numbers have risen to $361 and $417, respectively…

The next step is to apply a suitable price‑to‑earnings multiple to estimate fair value. Let’s use 20x earnings, given that’s the five‑year average.

Remember, we want to invest today based on what earnings potential will look like a year from now. So, by the end of November, when third‑quarter results are complete, the market should be priced based on the forward 12‑month numbers. Multiplying our fair‑value multiple of 20x by the forward 12‑month earnings estimate of $381, we get a price target of 7,980 for the S&P 500, about 3% higher than current levels.

But look further down the road. By year‑end, the market should be priced off CY2027 earnings estimates. Using the same math, fair value lands us near 8,340 for the S&P 500. That’s almost 8% above today’s levels.

Look, the market isn’t irrational, it’s early. The road ahead is always going to be filled with uncertainty. But while the pundits wait for clarity, disciplined investors are already positioning for what’s next. With earnings power accelerating and AI driving margin expansion, the S&P 500 isn’t topping out, it’s gearing up. Invest in the road ahead.

Five Stories Moving the Market:

SpaceX posted $4.4 billion in net income for the quarter ended in September compared to the expectation for $1.88 billion, while revenue also exceeded estimates, increasing 161% from a year ago – Bloomberg. (Why you should care - Musk said he expected annual recurring revenue of between $500 billion and $1 trillion by the end of 2027, as demand for its data-center space surges)

Elon Musk said a merger of his two companies SpaceX and Tesla would ​be "a good idea" and that they had formed special committees to discuss a union – Reuters. (Why you should care - a combined company would pair Tesla’s balance sheet and cash flow with SpaceX’s capital expenditure plans)

Persian Gulf oil exports have surpassed prewar levels, as an improvised shipping system under U.S. protection is helping tankers move oil through one of Iran’s fiercest waves of attacks in the Strait of Hormuz – WSJ. (Why you should care – trade intelligence tracker Kpler said oil flows through the strait have averaged over 24 million barrels per day through October 18 compared to 23.3 million prewar)

Japan’s export growth remained solid in September, with shipments of chips and cars rising; the value of exports rose 16.7% from a year earlier, according to the Finance Ministry – Bloomberg. (Why you should care – the surge was driven by

U.S. single-family homebuilding fell sharply in September and permits for future construction tumbled to a 3-1/2-year low as higher mortgage rates suppressed demand, suggesting residential investment resumed its declining trend ​in the third quarter – Reuters. (Why you should care – homebuilder sentiment is at its lowest since 2012, when the industry was recovering from the financial crisis)

Economic Calendar:

Earnings: META, TSLA, LRCX, PM, TMO, TXN, IBM, ABT, NEE, DHR, T, CME, ELV, CSX, MCO, KMI, URI, WAB, CCI, NTRS, TDY, LVS, PKG, LUV, ROL, GL

ECB's Lane (Chief Economist) Speaks (12:15 a.m.)

U.K. – CPI, PPI for September (2 a.m.)

ECB's Nagel (Germany) Speaks (3:15 a.m.)

U.S. - MBA Mortgage Applications (7 a.m.)

BoE's Bailey (Governor) Speaks (9 a.m.)

U.S. - Energy Information Administration Crude Oil Inventory Data (10:30 a.m.)

ECB's Lagarde (President) Speaks (12 p.m.)

Treasury Auctions $13 Billion in 20-Year Bonds (1 p.m.)