Big swings in share prices were not confined to smaller companies. Large-cap companies including CSL (ASX:CSL), Cochlear (ASX:COH), and Pro Medicus (ASX:PME) fell after missing the market’s earnings expectations or downgrading their profit guidance.

For investors, volatility can be psychologically challenging. Initial market reactions to earnings results may fail to take longer term trends into consideration resulting in poor judgment calls. Morningstar believes a disappointing earnings half generally does not fundamentally rewrite the long-term outlook for an established business, 

Indeed, looking beneath the noise, Morningstar's take is that February results are tracking satisfactorily. As of Friday 20 February 2026, Morningstar analysts have left their fair-value estimates (analytical reference points used within Morningstar’s research process) unchanged for almost two-thirds of companies they cover, meaning most results haven't delivered meaningful surprisesin either direction. 

Upgrades to estimates of fair-value for stocks that Morningstar covers are running at about a quarter of companies, not as strong as recent earnings seasons, but many results are still to come (as at Friday 20 February 2026). Downgrades to our fair-value estimates are near Morningstar’s historical average of about 15%. All up, in our view, pretty reasonable.

That assessment, of course, depends on whether Morningstar's equity analysts are appropriately assessing the risks to the earnings outlook, particularly the disruption threat from artificial intelligence. On that front, only time will tell. 

AI is something Morningstar is keenly focused on in 2026 - potentially a year of significant change for many businesses - as we work to understand what the latest advances in AI mean for competitive landscapes across the market.

That brings us to our three big themes of the February 2026 reporting season.
 

Theme 1: AI winners and losers

AI has been a buzzword every reporting season since ChatGPT burst onto the scene in late 2022. Once again, management teams across white-collar businesses continue to tout AI as a lever for cutting costs, lifting productivity and sharpening decision-making. 

This reporting season, we heard of AI tools at the banks and insurers cutting customer response times, improving fraud detection and facilitating more proactive communication with customers after natural disasters. 

By and large, however, Morningstar is not seeing these sorts of tools translate into higher profit margins for companies - at least not yet. 

In competitive industries, the benefits of widely-adopted technologies tend to be competed away, flowing to customers or the AI vendors themselves. In Morningstar’s view, how much a business retains the benefit from these new technologies depends on the strength of its competitive position.

So, the company’s ‘moat’ (its sustainable competitive advantage) is central to how much AI upside a business gets to keep. That cuts the other way, too. This February, against the backdrop of the sell-off in software stocks, a second question came to the fore: how vulnerable is your business to AI disruption? 

Morningstar's assessment is that AI poses a genuine threat to software that is not deeply integrated into its customers' businesses and is thus relatively easy to replace. 

In Morningstar’s opinion software companies with high switching costs (where it has hard for a customer to change providers), strong network effects (the product becomes more valuable as more people use it), or proprietary data are better placed to withstand this new threat from AI. 

Morningstar believes that some software stocks it covers may have these attributes, including WiseTech Global (ASX:WTC), Xero (ASX:XRO) and Technology One (ASX:TNE).
 

Theme 2: Two-speed economy

Not long ago, it looked like Australia’s cost-of-living crisis was a thing of the past. By mid-2025, inflation was cooling, real wages were growing and household spending was picking up. 

That narrative started to turn toward the end of 2025. Price pressures re-emerged, pushing core inflation outside the RBA’s 2-3% target band, and forcing the central bank to lift the cash rate at its first policy meeting of 2026. 

The knock-on effects are already showing up in the spending data. Commonwealth Bank (ASX:CBA) data shows discretionary spending growth among younger households is now decelerating, albeit modestly [1].

CBA data also shows older cohorts, with more accumulated savings and housing equity behind them, are increasing the pace at which they spend on discretionary products [2]. This is the 'two-speed economy', and the divergence is widening once again.

In Morningstar’s view, JB Hi-Fi’s (ASX:JBH) results encapsulated how quickly momentum can fizzle. The electronics and appliance retailer posted solid growth in the six months to December 2025. Like-for-like sales for its core Australian business were up 5% on last year. But JB Hi-Fi’s January trading update told a more cautious story, with that growth rate falling to only 2%. 

Meanwhile, Wesfarmers (ASX:WES) reported that sales growth at its Kmart business was accelerating in the early weeks of 2026, a sign that some consumers may be trading down to cheaper items as household budgets come under renewed pressure.

Decelerating sales growth poses a problem for retailers. Wages, the biggest cost of doing business for retailers, are rising annually at around 3.4%.  If sales growth slows relative to rising costs, this dynamic may affect retailers' profit margins. 
 

Theme 3: Resources roar back

After years of declining earnings, the resources sector returned to centre stage this reporting season. 

BHP Group (ASX:BHP) reported a 22% jump in underlying Net Profit After Tax (NPAT) and increased its interim dividend by nearly 50%. 

BHP’s copper division, now more than half of group earnings, was the growth engine with its underlying earnings (EBITDA) up almost 60%. 

Northern Star Resources’ (ASX:NST) underlying NPAT rose 49%, South32’s (ASX:S32) NPAT was up 16%, and Mineral Resources (ASX:MIN) returned to profitability.

Rising profits for resource companies are almost entirely a commodity price story. The price of most major metals is up year-on-year, and some significantly so: gold and copper are at or near record highs, and lithium has more than doubled from last year’s price trough. 

Iron ore, however, has not enjoyed the same price upswing, but it is holding up better than feared, given new supply from the Simandou project in Guinea and still-sluggish Chinese steel demand.
 

Conclusion

All up, Morningstar expects earnings of Australian equities, which have declined for three consecutive years alongside weaker commodity prices, to increase in fiscal 2026. 

This outlook, however, is not without risk: runaway inflation, a deterioration in the labour market or a shock to global growth from the rapidly shifting trade environment could all weigh on the potential recovery. 

 Recent company results and analyst modelling indicate a shift in earnings momentum following several years of decline, although outcomes will ultimately depend on economic conditions and company specific factors.

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[1] CommBank Household Spending Insights, ‘Economic Insights’, January 2026. 

[2] CommBank Household Spending Insights, ‘Economic Insights’, January 2026.