Big Technology names are expected to lead earnings growth in the coming reporting season, even as the group’s valuation edge over the broader market has narrowed to levels last seen only rarely over the past decade, strategists at Barclays said.
The first-quarter 2026 earnings season begins this week, with the densest concentration of major technology reports arriving in late April. Barclays’ baseline for the quarter calls for S&P 500 earnings per share of roughly $72, which they say aligns with consensus Street estimates.
Within that framework, the subset of large-cap technology companies - specifically Apple, Amazon, Google, Meta, Microsoft and Nvidia - is forecast to post about 25% earnings growth for the quarter. That growth rate stands in contrast to the roughly 8% gain Barclays expects for the remainder of the index.
Profitability in the Big Tech cohort is also seen expanding. Consensus projections point to aggregate profit margins among these firms increasing to near 29% from about 27% a year earlier, a change Barclays notes is consistent with the anticipated earnings outperformance.
At the same time, however, the sector’s valuation premium over the S&P 500 has contracted significantly. Barclays strategists, led by Venu Krishna, highlight that the premium now sits at the 9th percentile relative to the last ten years, reflecting a notable re-rating.
The strategists attribute much of the de-rating to a combination of software-focused selloffs and investor unease about whether large capital spending programs can be sustained. They push back on the more skeptical interpretations, arguing that the investment cycle supporting cloud and AI infrastructure remains in place.
Barclays expects aggregate hyperscaler capital expenditure to peak around 2028 at roughly $1 trillion, followed by only modest normalization. They estimate current consensus forecasts understate the scale of that peak investment by more than $300 billion, a gap the strategists link to persistent AI adoption and continued demand for cloud services.
Market breadth has shown some improvement in the wake of geopolitical developments in the Middle East, according to Barclays. Approximately 40% of S&P 500 constituents have outperformed the index in recent trading, up from 35% in the prior quarter, though that figure remains below long-run norms.
The early part of 2026 favored value stocks and small-cap names, while growth and technology lagged. Barclays points to ongoing downward revisions in small-cap earnings estimates relative to large caps as evidence of a widening fundamentals gap between the market segments.
Sectors diverged on margin trends heading into the quarter. Outside of technology, Utilities are among the limited number of sectors projected to see margin improvement, while Healthcare and Communications are forecast to show flat or contracting profitability. For the S&P 500 overall, Barclays expects only a slight expansion in aggregate margins.
On valuation, Barclays estimates the S&P 500 is trading at about 20 times forward earnings, a multiple they describe as elevated compared with historical norms. Within the index, Industrials and Communications are cited as sitting in the top quartile of their historical valuation spreads relative to the market.
Contextual takeaways - The coming weeks will center on corporate reports from the largest technology firms, and investors will be watching whether profit-margin expansion and strong top-line results validate recent estimates. Barclays’ view that hyperscaler capex remains robust provides a counterargument to concerns that heavy investment programs may be unsustainable, but that contention rests on projected spending trends rather than current visibility into each company’s outlays.