Nvidia, Broadcom Just Helped Break a 90-Year Earnings Trend—Now Comes the Hard Part

Strong quarterly results from Nvidia Corporation (NASDAQ:NVDA) and Broadcom Inc (NASDAQ:AVGO) show the AI trade continues to be alive and well. How alive is the AI trade? The strength of the sector is helping the S&P 500 do something not done in 90 years.

AI Stock Strength Breaks 90-Year Trend

In the second quarter, Nvidia reported earnings per share of $2.22, up 113.5% year over year. Broadcom’s latest quarterly results showed earnings per share of $3.32, up 96.4% year-over-year.

Overall, S&P 500 earnings are up 31% in the second quarter of 2026, well above the 23% Wall Street expected, according to data from RIA Advisors.

RIA Advisors shares a trend line that has held for 90 years in a newsletter. The S&P 500 earnings have stayed within a standard deviation of +/- 2, except for dropping below the floor in 2008. In 2026, earnings growth is now above the trend-line range for the first time.

According to the report, the AI sector did most of the heavy lifting for earnings growth. AI names saw eps growth of 54% in the quarter, compared to 14% growth for non-AI names.

RIA Advisors asks if "this time is different" for investors or if there should be skepticism on the earnings growth lasting.

The S&P 500, which is tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY), trades at 25.6x times trailing profits, which is above the typical bull market peak of 20.1x, according to RIA Advisors.

What Happens Next

Based on the trend line of the last 90 years, there will now be extreme pressure on the AI names for the third quarter and beyond. RIA Advisors predicts one of two things will happen next:

"Either AI capital spending converts into durable returns and record margins hold, in which case earnings grow into the price, and the bull runs on."

"Capex depreciation starts hitting the income statement, AI demand hits an air pocket, margins normalize, and profits fall back toward the trend they just escaped."

RIA Advisors believes investors are pricing a higher likelihood of option one.

The report says forward earnings estimates have been climbing, but forward multiples are not increasing.

The report cautions that investors should ride the trend, but also keep cash on hand and invest in bonds for safety if option two happens.

"The trend is your friend, right up until the bend at the very end. Position for the friend. Prepare for the bend."

Photo: Shutterstock AI Generator