An elite cadre of tech giants that drove the stock market to records is under pressure to keep the party going this earnings season. 

The S&P 500 has climbed 17% this year, fueled by investor excitement over artificial intelligence that has sent shares of Nvidia and its fellow tech titans to dramatic heights. The chip maker’s stock has more than doubled this year, pushing its market value above $3 trillion. Alphabet, Meta and Microsoft have surged as well, with all logging double-digit gains.

The growing size of the index’s heavyweights means a lot is riding on their ability to deliver profits and guidance in coming weeks that justify their sky-high valuations.

“You have an unusual situation where you have fantastic companies and transformative industries, but is the bar set too high even for them?” said Jim Smigiel, chief investment officer at SEI. 

Optimism has abounded even after last year’s AI-fueled rally. The top 10 companies in the S&P 500 make up 37% of the index’s market cap but contribute 24% to its earnings—the widest such gap since the third quarter of 1990, according to data from Torsten Slok, chief economist at Apollo Global Management. 

“The problem for the S&P 500 today is not only the high concentration but also the record-high bullishness on future earnings from a small group of companies,” Slok wrote.

Overall, companies in the S&P 500 are expected to report a fourth straight quarter of earnings growth, with profits projected to have climbed 8.8% from last year’s second quarter, according to FactSet. That would mark the biggest increase since the first quarter of 2022. 

In the week ahead, investors will get results from banking behemoths JPMorgan Chase and Citigroup, as well as Delta Air Lines, PepsiCo and Conagra. They will also get fresh insight on inflation with the release of the consumer-price index for June, which could influence the Federal Reserve’s outlook on interest rates.

On Friday, data indicating a cooling job market bolstered the case for a rate cut in September. 

The stock market’s ascent early this year was in part driven by expectations that the Fed would cut rates at least six times. Those hopes have since dimmed, with traders now betting on at least two cuts by the end of the year. Investors worry that if earnings come in weak, the market’s momentum could fade.

Companies in the S&P 500 are trading at 21.4 times their projected earnings over the next 12 months, compared with the five-year average of 19.7, according to FactSet. 

“You’ll see a correction in stock prices if they’re not able to beat out their earnings projections,” said Victoria Bills, chief investment strategist at Banrion Capital Management. “How bad was the miss from the bull’s-eye? Were you a few centimeters off or did you completely miss the board entirely?”

In recent days, Amazon has hit a $2 trillion valuation, with shares up 32% this year. Meta Platforms shares have jumped 53% over the same period, while Apple shares have added 18%. Meanwhile, Microsoft joined the $3 trillion market-cap club this year, and has advanced 24%. And after a recent run-up, shares of Tesla have erased their losses for the year.

“Some of the big heavyweights can continue to deliver, but I do think it gets harder and harder as you go into the end of the year,” said Emily Leveille, portfolio manager at Thornburg Investment Management. 

Wall Street appears upbeat, with analysts expecting S&P 500 companies’ profits to rise 11% for 2024, according to FactSet.

But investors are watching whether earnings growth will broaden. Analysts expect the communication-services sector, home to the likes of Alphabet and Meta, to report the biggest profit jump among the S&P 500’s sectors, rising 18%, according to FactSet. The healthcare sector is expected to report a 17% increase. The materials sector is forecast to log the biggest profit decline, down 10% from a year ago.

Investors will also be focused on what executives say about consumer spending, with early reports showing signs of a pullback among lower- and middle-income households. 

Walgreens Boots Alliance shares plummeted 22% on June 27 after the pharmacy chain reported disappointing earnings and lowered its guidance for the full year. Nike shares tumbled 20% the day after it reported a sales drop and warned that revenue could fall significantly this financial year. 

“Analysts will be poring over those reports to see if we’re seeing a broader area of weakness in the more cyclical areas of the economy even though you’ve got this overlay of tremendous market performance from these tech leaders,” said David Kelly, chief global strategist at J.P. Morgan Asset Management.