US corporate profit boom faces its ‘Minsky moment’
SPY•US corporate profits reached a record $4.7 trillion in the 12 months to mid-year, up 17% year over year, with AI investment driving much of the earnings growth. The article warns that debt-funded AI spending and gains from private AI investments could make reported profits vulnerable if financing or valuations weaken.
1. AI drives profit growth
US corporate profits reached $4.7 trillion for the 12 months to mid-year, up 17% from the previous year. S&P 500 earnings per share rose 26% in the 12 months to July, while 19 companies heavily involved in the AI buildout saw forecast earnings rise by about $700 billion since January 2025—50% more than all other companies in the index combined.
2. Spending boosts reported earnings
AI investment can lift reported profits because buyers spread equipment costs over time while sellers record revenue upfront. The article says the four major hyperscalers—Alphabet, Amazon.com, Microsoft and Meta Platforms—saw annualized earnings rise by $222 billion in the four quarters leading up to mid-2026, while “other non-operating income” rose by $224 billion. Morgan Stanley estimates that as much as 40% of this year’s AI capital spending will become operational between 2027 and 2029.
3. Debt and profit risks
Hyperscalers have issued about $225 billion of unsecured bonds so far this year and have $1.1 trillion in lease commitments for AI equipment and services. Morgan Stanley forecasts they will have negative free cash flow of about $550 billion next year. The article says loss-making data-centre operators and AI labs depend on rising valuations and continued access to capital, while the viability of the AI investment boom remains uncertain.
