Software companies begin reporting Q3 earnings today, with a chance to achieve a rare feat: a 100% earnings beat rate for the third consecutive quarter. StarMine Predicted Surprise signals remain statistically significant for Palantir (PLTR) and Intuit (INTU), both signalling potential EPS beats.
But will earnings beats be large enough to offset the anticipated decline in profit margins? After seven consecutive quarters of earnings growth outpacing revenue growth, S&P 500 Software may be approaching a turning point, with margins forecast to decline from 34.4% last quarter to 32.5% in Q3 as revenue growth overtakes earnings growth.
A potential margin inflection comes amid growing concerns over AI-driven disruption to traditional SaaS business models, threatening future pricing power and profitability. Forward P/E multiples have compressed from the mid-30s to the mid-20s over the past year, despite robust earnings and revenue growth. Analyst sentiment also remains bullish, with 10 of 20 companies in the group holding StarMine ARM scores above 70, versus just two below 30 (1 = bearish, 100 = bullish).
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