JPMorgan sees a rare AI profit cycle, but warns funding strain is building

JPMorgan Asset Management says the AI investment boom is behind almost 30% global earnings growth this year and 20% in 2027. Its main caution is the bill. Hyperscalers are borrowing more to pay for AI, and higher interest rates are making that debt costlier.

The view comes from the firm's Global Equity Views for the fourth quarter of 2026, published on 27 October. Stocktwits covered it on 1 November. This article draws on both.

The short version

JPMorgan is still constructive on AI. It is not telling investors to leave the trade. It wants them to be pickier, to favour higher quality names and to spread their bets. In its words, it has "rarely seen such a strong profit cycle".

Who gains

JPMorgan's U.S. team expects 27% growth in operating profits this year. That excludes mark-to-market gains on investments in firms such as Anthropic and OpenAI. The team started the year at 13%. By June it had reached 26%, so the forecast has barely moved in the last three months. That is why JPMorgan says the pace of upgrades is cooling.

The gains are not limited to AI. Energy profits are up more than 80% this year. For the rest of the S&P 500 outside AI and energy, JPMorgan estimates roughly 10% annual profit growth this year and next. Almost 90% of S&P 500 companies are growing earnings, which JPMorgan says is at the top of the historical range.

The practical point: you do not need to own only AI names to benefit from this cycle. JPMorgan says the breadth gives investors more room to diversify away from technology.

Who pays

This is the risk in the headline. JPMorgan makes two points. First, the market has already largely priced in another strong year of AI spending in 2027. Second, the strains of funding all this growth are starting to show.

Hyperscalers have turned to debt markets because spending now outstrips their cash flow. Higher rates make that borrowing more expensive. JPMorgan expects robust spending well into 2028, but it is watching the cost of capital closely.

It also pointed to the stress among the most aggressive spenders. The bonds and shares of some neocloud companies have come under pressure. JPMorgan said it consulted a "distance to default" measure for the first time in a while. It added that some of the stocks under the most pressure in recent days do look vulnerable.

A separate JPMorgan Asset Management note, "Could rising AI debt derail the investment boom?", puts numbers on the scale. It says the buildout has absorbed a cumulative $1.6 trillion of capital spending since 2023. Investors expect upwards of $1 trillion a year for the foreseeable future. The note says what began as a mostly cash-funded expansion increasingly depends on debt markets. It also warns that negative sentiment could feed on itself and push credit spreads wider.

JPMorgan's AI financing FAQ draws a line between borrowers. It says lower-rated neoclouds face more borrowing, power and refinancing risk. Higher-rated hyperscalers are better insulated.

The momentum reset

The report also covers a sharp reversal in stock market behaviour. The momentum factor, which rewards recent winners, was exceptionally strong over the past year. AI beneficiaries soared and perceived victims were shunned. In July momentum collapsed, and JPMorgan says that month ranked in the bottom 1% of the last 100 years. It calls that especially unusual in a rising market.

JPMorgan says history favours the laggards after such a reset. It points to software stocks, often labelled "AI losers", as a place to look. It also says many of those businesses may end up benefiting from the technology.

What to watch next

• Borrowing costs. JPMorgan says higher rates are a possible drag on profits outside AI too.
• Credit spreads for AI borrowers. JPMorgan's own research flags these as the clearest sign of financing stress.
• The 2027 spending plans. JPMorgan says the market has largely priced a strong year in already, so there is less room for upside surprises.
• Valuations. JPMorgan says markets look slightly expensive, but not remarkably so. Some measures, such as emerging market price-to-book ratios, are rarely this high.

Bottom line

JPMorgan's position is clear: the profits are real, the AI spending is not slowing yet, and the funding is getting harder. Its team is more neutral than positive on market returns. It recommends staying invested while diversifying by style and geography.

This is a research view from one asset manager, not personal financial advice. JPMorgan's own forecasts have shifted through the year, and the firm says its team is still managing AI exposure stock by stock.