Q3 Earnings Estimates Climb Toward 30% as Banks, TSMC Report

A season that started with the bar going up

Third-quarter earnings season usually opens after analysts have spent the quarter lowering their forecasts. This year they raised them instead. FactSet's consensus for S&P 500 earnings growth in the third quarter reached 29.6% as of October 9, up from 26.7% on June 30, and expected revenue growth rose to 12.4% from 10.9%.2 Over that period, estimated earnings per share climbed 1.4%. Over the previous five years, estimates had fallen an average of 2.2% during a quarter.1 In dollar terms, analysts now expect the index to earn $801.6 billion, 2.3% more than they projected at the start of the quarter.10

Company guidance points the same way. Of the 116 S&P 500 companies that issued third-quarter EPS guidance, 72 guided positively, or 62%. The five-year average is about 40%.2 FactSet says 72 is the most positive guiders for any quarter since it began tracking the figure in 2006. The previous high was 65, in the second quarter of 2021.2 There is a caveat: 44 of those 72 companies are in Information Technology.2

If the forecast holds, the index will post a third straight quarter of growth above 25% and an eighth straight quarter of double-digit growth.2 State Street notes that FactSet's data show no quarter since the third quarter of 2008 that met both conditions at once.17

The forecasts don't agree on how big the number is

All the major forecasters see strong growth, but their numbers differ by several points. Zacks expected S&P 500 earnings to grow 24.3% on revenue growth of 11.5%.11 Bloomberg's consensus is about 25%, and LSEG's is close to 30%.16 One wealth manager points out that Zacks was projecting roughly 22% to 24% in August and September, well under FactSet's figure.15 FactSet's own StreetAccount team says the sell side has been quoting a consensus of about 27% because it excludes some other income.3

What matters is the direction, not which number is right. Every source shows estimates rising over the summer. Zacks says its revisions have trended upward for almost a year. The gains started in Technology, spread to Energy after supply disruptions in the Middle East, and now cover seven of its 16 sectors.12 Readers should still keep in mind that "30% growth" and "24% growth" can describe the same quarter.

History says the final number will be higher

Estimates also tend to understate results. FactSet notes that actual growth has come in above end-of-quarter estimates in 37 of the last 40 quarters.13 Over the past five years, companies beat estimates by 7.5% on average, which added 6.4 percentage points to the growth rate during reporting season. Adding that to the 29.2% estimate on September 30 gives about 35.6%.2 Using the past four quarters instead, when beats added 14.1 points on average, the result would be 43.3%.2

The early reports fit that pattern. Of the first 19 S&P 500 companies to report, 84% beat the mean EPS estimate, and their combined earnings came in 4.9% above forecasts.2 Zacks' tally for the same 19 companies shows earnings up 150.9% on revenue up 27%.11 That figure is mostly Micron, whose earnings rose more than 1,000% from a year earlier. Without Micron, growth for the other 18 companies falls to 9.4%.14

Banks: Goldman's big beat, JPMorgan's rare miss

The big banks opened the season on October 13 with results that were good overall but uneven. Goldman Sachs earned $17.01 per share on net revenue of $18.68 billion, up 23% from a year earlier, and net income rose 29% to $5.29 billion.24 Its equities desk brought in $6.44 billion, up 72%.25

The size of Goldman's beat depends on which consensus you use: $13.02 from LSEG, $13.09 from Investing.com, or $12.86 in another tally that put the beat at 32.3%.252421 Investing.com also cites a Reuters pre-release estimate of $12.44. Goldman beat every one of them by a wide margin.40 The bank also says a charitable contribution of about $450 million reduced EPS by roughly $1.39

JPMorgan missed. It earned $5.57 per share against an LSEG estimate of $5.90, and revenue was $50.91 billion against $51.22 billion expected.25 It had beaten EPS estimates in 16 of the previous 20 quarters.25 Without $658 million in securities losses, EPS would have been $5.75, which still falls short.22 Lower-than-expected fixed-income trading and costs that grew faster than revenue explain most of the gap.25 JPMorgan did raise its net interest income guidance, excluding markets, to $97.2 billion from $96.5 billion.25

Citigroup earned $2.85 per share against an expected $2.65, on revenue of $23.8 billion, and its fixed-income desk had its best third quarter in at least ten years.23 Wells Fargo slightly beat on EPS, at $1.87 against $1.85, but revenue of $21.87 billion fell short of the $22.31 billion expected.27 One tally of the six biggest banks counts beats at Goldman, Citigroup, Morgan Stanley and Wells Fargo and misses at Bank of America and JPMorgan.21

The trading results split oddly. Equities trading surged while fixed income weakened, and analysts at Oppenheimer called that unusual because the two businesses tend to move together.26 One account links the weakness in bond trading to the jump in interest rates.21

Accounts of how the stocks reacted conflict. Early reports had Goldman and JPMorgan shares rising and Wells Fargo falling.2426 A later summary says all six big banks closed lower on their earnings days, with declines ranging from 0.2% at Goldman to 5.6% at Citigroup.21 Both accounts may be accurate, since one describes early trading and the other the close, but together they suggest strong results did not translate into gains. Financials had a low bar to clear: FactSet expected just 3.0% earnings growth for the sector.28

TSMC shows where the profit growth is concentrated

TSMC's report on October 15 confirmed the AI boom without qualification. Net profit rose 68.7% to a record NT$763.06 billion, ahead of the LSEG consensus of NT$746.3 billion.43 It was the company's sixth record quarter in a row. Revenue of $46.72 billion beat the top of TSMC's own guidance range, and it expects fourth-quarter revenue of $52.3 billion to $54.3 billion.42 Gross margin slipped 1.3 points from the second quarter to 66.4%, mainly because of the cost of ramping up 2-nanometer production.42

The result fits a pattern across the index. FactSet's StreetAccount says semiconductors, expected to grow earnings about 130%, account for more than 40% of the S&P 500's total earnings growth. It also says sell-side previews found more than half of the index's growth comes from AI infrastructure companies.3 Energy is the other major driver, with expected growth of 121.1% as oil prices rise.10 Without Energy, Zacks' growth forecast for the index falls to about 20%, and without Tech the rest of the index grows 14.4%.15

Price targets keep rising

Analysts have been raising price targets ahead of the reports. Bank of America lifted its TSMC target to $620 from $590 and raised its 2026–2028 EPS estimates by 2% to 9%.34 Barclays raised its target to $665 from $650.33 Goldman Sachs raised its Meta target to $860 from $725 ahead of the October 21 report, citing clearer long-term revenue prospects.31 Forecasts for future periods are moving the same way. FactSet's consensus for 2026 earnings per share rose 15.6% between late February and October 2, and the 2027 estimate rose 15.3%.7

One figure here looks questionable. TipRanks lists a $883 average TSMC target, implying about 95% upside, while another report cites a $553 average from the same platform.3332 Given that the highest named targets are $620 and $665, the $553 figure is more consistent with the rest of the coverage.

The risks: rising estimates and rising rates

The bullish case has weak spots. Bloomberg reported on September 23 that, for the first time in 23 weeks, more sell-side analysts were cutting earnings estimates than raising them, ending the longest run of net upgrades since 2021.18 The 10-year Treasury yield reached 5.36% in midweek before ending near 5.24%, up about 125 basis points over the past year.16 Associated Press reporting notes that the Federal Reserve raised rates last month.24 Jamie Dimon warned that deficits, sticky inflation, high asset prices and rising rates were "shifting under the surface."21

Bank of America puts the problem this way: after two quarters of big beats, beating estimates is now expected and may not move stocks.19 The bank reactions back that up.

Our assessment is that the third quarter will almost certainly beat the 29.6% consensus, probably landing in the mid-30s. But that growth depends heavily on chips and oil, and higher bond yields are reducing what investors are willing to pay for it. The forward P/E has already fallen to 19.1 from 20.4 at the end of June.2 That means earnings have risen faster than stock prices. The question for late October, when much of the Magnificent Seven report on October 28–29, is whether the large hyperscalers can show that their AI spending is paying off.17