Explainer: Earnings Strength and Deal-Making Offset AI Cost Fears on Wall Street

Wall Street closed modestly higher by the evening of February 18, 2026, as investors balanced strong corporate earnings and a revival in merger activity against lingering concerns over the rising costs of artificial intelligence. The rebound was led by technology stocks, helping markets recover from recent pullbacks and stabilizing sentiment ahead of key monetary policy signals.


The Dow Jones Industrial Average advanced by roughly 308 points, or 0.8%, while the S&P 500 climbed about 0.9%, bringing it within striking distance—around 1.1%—of its record highs. The Nasdaq Composite posted a similar percentage gain, reflecting renewed confidence in large-cap technology names.


Tech Rebound Lifts Markets Despite AI Cost Pressures

Technology shares regained momentum after earlier weakness, even as investors remained cautious about the capital intensity of AI investments. Nvidia rose 2.6% after announcing a multi-year agreement to supply artificial intelligence chips to Meta Platforms, reinforcing expectations of sustained demand for advanced computing infrastructure.


Positive earnings surprises also helped shore up confidence. Cadence Design Systems surged 9.5% after beating fourth-quarter revenue expectations, while Analog Devices gained 3.4%, supported by an upbeat outlook for the second quarter tied to AI-driven demand. Not all results impressed, however. Palo Alto Networks slid 6.3% after trimming its full-year profit forecast, citing higher AI-related costs that weighed on margins.


Earnings Season Shows Broad Resilience


By February 18, roughly 74% of companies in the S&P 500 had reported results for the fourth quarter of 2025. Aggregate data pointed to 13.2% year-on-year growth in earnings per share and 9.0% revenue growth, underscoring the overall resilience of corporate America.


Among notable performers, Global Payments jumped 14.1% after issuing a stronger-than-expected annual profit outlook, while Atricure reported 15% revenue growth for 2025 and projected 12–14% growth in 2026. Wingstop delivered a solid fourth quarter, and Verisk Analytics issued constructive guidance for 2026.


Looking ahead, investors are closely watching upcoming results from consumer-facing and technology firms, including Booking Holdings, Carvana, DoorDash, and Occidental Petroleum. Attention is also focused on Walmart, due to report on February 19, as a bellwether for consumer spending trends. Early signals suggest higher-income consumers remain resilient, while middle- and lower-income households are becoming more cautious.


Deal-Making Accelerates After Slow Start to 2026


Beyond earnings, mergers and acquisitions have become a defining feature of early 2026. After a subdued January—when only one deal exceeded $10 billion—February saw a sharp pickup in strategic transactions across healthcare, technology, energy, and industrials.


In healthcare, Danaher agreed to acquire Masimo for approximately $10 billion in cash, a deal that values Masimo at $180 per share, representing a 40% premium. In consumer goods, Kimberly-Clark and Kenvue moved forward with a $48.7 billion combination, expected to close in the second half of 2026.


The energy sector also remained active, with Devon Energy completing a $21.4 billion merger with Coterra Energy. In technology, Alphabet agreed to buy cybersecurity firm Wiz for $30 billion, while Palo Alto Networks proposed a $25 billion acquisition of CyberArk to bolster AI-related security capabilities.


Other notable moves included Hapag-Lloyd acquiring ZIM for $4.2 billion, Boston Scientific agreeing to buy Penumbra for $15 billion, and renewed bidding activity around industrial assets such as BlueScope Steel.


A Strategic M&A Cycle Takes Shape


Taken together, the surge in earnings resilience and the revival of large-scale deal-making point to what many investors view as a strategic M&A cycle in 2026. While higher AI costs and financing conditions remain headwinds, companies appear increasingly willing to pursue transformative deals—particularly in artificial intelligence, energy, and healthcare—to secure long-term growth.


For markets, the message so far is clear: despite pockets of volatility, Wall Street is finding support in solid fundamentals, disciplined consumer demand, and a renewed appetite for strategic expansion.