(Bloomberg) -- Now that Corporate America’s earnings season is drawing to a close, the takeaway is clear: A broad swath of companies say the worst of last year’s profit pain is over.

With 90% of quarterly reports in, per-share earnings of S&P 500 companies have climbed 7.3% in the first three months of 2024 — on track for the second-best profit growth in two years, according to Bloomberg Intelligence. Excluding charges from big drug companies, profit growth sits at 10.5% — on pace for its best period since late 2021. 

“Most of the earnings growth has been attributed to Big Tech again, but broader participation is improving, which will allow the stock market to have another leg up,” said Brooke May, managing partner at Evans May Wealth. “Stock valuations are a bit expensive, but that’s in anticipation of stronger earnings growth in the coming quarters.”

The outlook is getting better, with optimism returning to corporate boardrooms on a resilient economy that can support stock gains as profits grow for a third straight quarter. 

That said, analysts’ earnings guidance for all of 2024 has barely budged at around $245 per share. The crucial question now is whether chief financial officers can maintain this level of profitability as inflation remains sticky while profit guidance is muted.

Here are the key things we learned from first-quarter results so far:

Big Tech Powers Growth

Earnings from Big Tech companies continue to lead profit growth in the S&P 500 on strong margins, which helped refuel optimism for stocks following a weak start in April. Traders will read the tea leaves next week when artificial-intelligence darling Nvidia Corp. takes the spotlight on Wednesday — the last of the so-called Magnificent Seven companies to report.

Profits for the cohort — Apple Inc., Microsoft Corp., Alphabet Inc., Amazon.com Inc., Meta Platforms Inc., Tesla Inc. and Nvidia — are on course to rise 49% in the first quarter, according to BI. When excluding them, the rest of the index’s profits are on pace to shrink by 1.4%. But starting in the second quarter, the S&P 500’s net-income growth is forecast to be positive even without Big Tech.

Companies Reinvesting More

A key feature this earnings season was an increase in buybacks and dividends from technology firms — a positive signal that can drive the next leg of the stock market rally. Apple announced the biggest US buyback ever, while Alphabet declared its first-ever dividend and said it will repurchase an additional $70 billion in stock. And Meta revealed plans for another $50 billion in share buybacks.

Completed buybacks climbed 16% in the first quarter compared with the same period a year ago, according to Birinyi Associates Inc. Among companies that bought back stock in both 2023 and 2024, 59% have increased their repurchases this year, data show. 

Margin Outlook Improves

Concerns about deteriorating profit margins proved unfounded even as sales growth was underwhelming. About 72% of S&P 500 firms reported better-than-expected net-income margins for the first quarter — the highest share in BI’s records going back to 2021.

Cost-cutting efforts and strong margin improvement is forecast in the technology and communication-services sectors in the second quarter, while staples and health care are anticipated to struggle. 

Consumer Strength Eyed

After Walmart Inc. breezed to another quarter of sales growth, results from Target Corp. to Lowe’s Cos. next week will provide investors with further insight into consumer strength and corporate profitability. 

While tech and communication services are once again leading the growth sectors, the biggest profit beats have come from staples companies, with 90% of those firms posting better-than-expected results. Still, several consumer companies noted that shoppers have begun to trade down to lower priced product offerings, according to Goldman Sachs Global Investment Research. And sentiment fell to a six-month low in May. 

AI Chatter Waning

The proportion of S&P 500 companies discussing AI on earnings calls has continued to rise, with 41% of firms mentioning it, up from 23% a year ago, per Goldman Sachs. Though references in the US and Europe have shown signs of stalling. 

Compared with last earnings season, the energy sector has seen the most growth in AI mentions, according to 22V Research. Industrials and staples show some of the lowest AI interest.

“Interest in AI, or more cynically, companies wanting to signal interest, remains high,” Dennis DeBusschere, chief market strategist of 22V Research, wrote in a note. “There are far fewer concrete investments in and implementations of AI tools.”

©2024 Bloomberg L.P.