Missed it while only watching AI stocks... What is the identity of 'this stock' that outperformed the S&P 500 by double?

▲ U.S. stock market, bull market/AI generated image

While 23 stocks in artificial intelligence (AI) and energy sectors effectively led the U.S. stock market's rise, Merck & Co. (MRK) outperformed the S&P 500 Index (SPX) with nearly double the return, leveraging its dividends and earnings resilience. Merck's stock price has risen 19% since the beginning of 2026, surpassing the S&P 500's approximately 10% increase, and with a quarterly dividend of $0.85, it is attracting the attention of investors wary of over-concentration in tech stocks.

According to Barchart on July 10 (local time), Merck has risen 49% over the past 52 weeks and 13% over the past six months. Its dividend yield is approximately 2.61%, exceeding the healthcare sector average of 1.58%, and it has increased its dividends for 15 consecutive years. The estimated payout ratio is 60.14%.

Recent earnings also exceeded market expectations. Revenue was $16.29 billion, surpassing the estimated $15.82 billion, and increased by 4.9% year-over-year. Revenue growth, excluding currency effects, was 3%, higher than 1% in the same period last year. Adjusted earnings per share (EPS) showed a loss of $1.28, better than the estimated loss of $1.47, but operating profit margin plummeted from 37.8% last year to -21.7%. The company slightly raised its full-year revenue outlook to approximately $66.4 billion and its adjusted EPS outlook to $5.1.

Its growth strategy is focused on new drugs and AI. Merck completed the acquisition of Terns Pharmaceuticals, adding TERN-701, a candidate for chronic myeloid leukemia treatment, to its oncology development assets. It signed a multi-year collaboration agreement worth up to $1 billion with Google Cloud, a subsidiary of Alphabet (GOOG·GOOGL). The plan is to combine enterprise AI tools, including Gemini, with internal scientific data and apply them to R&D, manufacturing, and sales operations to boost productivity across its 75,000-person organization. It is also conducting research collaborations with Mayo Clinic, utilizing clinical and genomic data.

Short-term earnings outlook remains a concern. Merck is scheduled to release its earnings on August 4, and analysts expect the EPS for that quarter to be $2.12, similar to last year's $2.13. The full-year 2026 EPS forecast is $5.19, 42.2% lower than last year's $8.98. Wells Fargo analyst Mohit Bansal issued a 'buy' rating with a target price of $145, while RBC Capital maintained an 'outperform' rating with a target price of $142.

The consensus opinion of 28 analysts covering Merck is 'moderate buy,' with an average target price of $133.11. Barchart cited Merck's stock price appreciation, stable dividends, and growth strategy based on acquisitions and AI investments as reasons for its strong performance against the S&P 500 in 2026. Despite the short-term earnings decline forecast, analysts are confident in a recovery in 2027, citing its new drug development assets and operational execution capabilities.

[Article Key Summary]

-Merck's stock rose 19% in 2026, outperforming the S&P 500's approximately 10% gain, with a dividend yield of about 2.61%.

-Recent revenue was $16.29 billion, exceeding expectations, and Merck raised its annual revenue outlook to approximately $66.4 billion.

-Merck is pursuing the acquisition of Terns Pharmaceuticals and a collaboration with Google Cloud worth up to $1 billion for AI as its growth strategy.

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