US Earnings Season Faces Its Real Test as Big Tech Takes Centre Stage

Wall Street buildings, financial charts and data-centre servers combined in an editorial illustration representing the US earnings season and AI investment.

Standfirst: Early second-quarter results have been stronger than expected, but the busiest week of the US reporting season will test whether profit growth is broad, sustainable and strong enough to support demanding market valuations.

The US corporate reporting season is already delivering unusually strong headline numbers. Yet investors may learn more from the next few days than from everything reported so far.

By 24 July, 27% of S&P 500 companies had released second-quarter results. Of those, 86% had beaten analysts’ earnings-per-share estimates, while 80% had exceeded revenue forecasts. Both figures were above their longer-term averages. FactSet’s blended estimate showed S&P 500 earnings rising 37.9% from a year earlier, the fastest pace since the third quarter of 2021.

That is an impressive start. It is also a number that needs careful interpretation.

Alphabet’s results included a US$98 billion investment gain, which significantly inflated the index-level earnings surprise and growth rate. Excluding Alphabet, FactSet estimated that S&P 500 earnings growth would be 25.9% rather than 37.9%. That would still represent strong growth, but it illustrates why investors should look beyond the headline percentage.

The coming week should provide a clearer picture. FactSet says 177 S&P 500 companies are scheduled to report, including nine members of the Dow Jones Industrial Average. Microsoft and Meta report on Wednesday, 29 July, followed by Apple and Amazon on Thursday, 30 July.

The central question is no longer simply whether companies can beat forecasts. It is whether earnings, cash flow and management guidance can justify the expectations already embedded in share prices.

Strong earnings, but a high bar

Corporate America entered the quarter with more optimism than usual. Analysts raised their S&P 500 earnings estimates by 3.4% between the end of March and the end of June. Normally, estimates are reduced as a quarter progresses: over the previous five years, they had fallen by an average of 2%.

This matters because the familiar pattern of companies beating lowered expectations is less applicable when forecasts have already been revised upwards. Strong results may therefore contain more genuine information than they do in a typical quarter.

The problem is that investors already appear to expect considerable strength. The S&P 500’s forward 12-month price-to-earnings ratio stood at 20.1 times on 22 July, according to FactSet. That was above its 10-year average of 19 times and roughly in line with its five-year average of 19.9 times.

A valuation at that level is not necessarily excessive, especially when earnings are rising rapidly. But it leaves less room for disappointing guidance, weaker margins or evidence that recent profit growth is concentrated in a small number of companies.

Markets may therefore respond less to whether a company beats the latest quarterly estimate and more to whether management raises, maintains or softens its outlook for the remainder of the year.

AI spending will face closer scrutiny

The most consequential reports will come from the large technology platforms that are financing the global build-out of artificial-intelligence infrastructure.

Microsoft, Meta and Amazon are investing heavily in data centres, chips, networks and cloud capacity. Their spending supports a much wider chain of semiconductor makers, equipment suppliers, utilities, construction companies and data-storage providers. It has also become a significant driver of US business investment.

Until recently, investors were often prepared to reward higher AI capital expenditure because it signalled confidence in future demand. That relationship is becoming more complicated. The larger the spending commitments become, the more investors will ask when they will generate sufficient revenue and cash flow.

For Microsoft, the focus will be on the growth of Azure and demand for AI services, but also on whether capacity constraints and infrastructure costs are limiting margins. For Meta, investors will examine whether AI is improving advertising engagement and efficiency quickly enough to offset rising spending on computing infrastructure and technical talent. Meta has confirmed that it will report after the market closes on 29 July.

Amazon’s report will offer two different readings of the economy. Amazon Web Services will show the strength of enterprise demand for cloud and AI computing, while its retail operation will provide evidence about consumer spending, delivery costs and pricing power. Amazon is scheduled to release its results on 30 July.

The most useful numbers may therefore be capital expenditure, free cash flow, cloud growth and operating margins rather than headline earnings alone.

Apple will test the consumer and device cycle

Apple’s results will provide a different test. Its third fiscal-quarter earnings call is scheduled for 30 July.

Investors will be watching product demand, services revenue, margins and management’s outlook for the next iPhone cycle. The report may also reveal whether consumers remain willing to spend on premium devices after several years of uneven replacement demand.

Apple is important beyond its own share price. Its supply chain reaches across Asian manufacturers, semiconductor producers and component suppliers. Stronger or weaker guidance can therefore affect expectations well beyond the US technology sector.

Its report may also help answer a broader question about AI: whether the technology is already changing consumer purchasing behaviour, or whether most of the financial benefits remain concentrated in cloud infrastructure and digital advertising.

The breadth of growth will matter

Ten of the 11 S&P 500 sectors were reporting year-on-year earnings growth as of 24 July, with energy, communication services, information technology and materials leading. Healthcare was the only sector showing a decline. All 11 sectors were reporting revenue growth.

This breadth is encouraging because it suggests the earnings expansion is not entirely dependent on a handful of technology companies. Financial companies have already made a significant contribution to the improvement in revenue growth, while energy earnings have been supported by higher commodity prices.

The next stage of the season will test whether that breadth continues across industrials, consumer businesses, healthcare companies and smaller technology firms.

Investors should pay particular attention to companies with direct exposure to freight volumes, payment activity, advertising, travel, discretionary purchases and corporate investment. Their commentary may reveal whether economic growth remains resilient or is becoming increasingly uneven.

Guidance may matter more than the quarter

Quarterly results describe the recent past. Management guidance provides an imperfect but valuable view of what companies are seeing now.

Three areas deserve particular attention.

First, labour and input costs. Companies may be reporting healthy revenue growth while still facing pressure from wages, energy, logistics or imported materials. The ability to protect margins will vary sharply by industry.

Second, consumer behaviour. Aggregate spending can remain firm even as lower-income households become more cautious and higher-income consumers continue to spend. Retailers, payment companies and travel businesses may show whether this divergence is widening.

Third, financing conditions. Higher bond yields or tighter credit standards may not immediately affect large cash-rich companies, but they can influence housing, business investment and demand among smaller customers.

The strongest results will therefore be those that combine revenue growth, stable or improving margins, healthy cash generation and confident guidance. A narrow earnings beat produced by one-off gains or cost cuts will carry less weight.

What investors should watch next

The season is likely to shape expectations in four areas:

Earnings quality: How much profit growth comes from underlying operations rather than investment gains, tax effects or other unusual items?

Return on AI investment: Are cloud revenue, advertising efficiency and software demand growing fast enough to justify accelerating capital expenditure?

Market breadth: Is earnings growth spreading across sectors, or does index-level strength still depend heavily on a small group of companies?

Forward guidance: Are companies raising forecasts, or warning that costs, demand or financing conditions could become less favourable?

FactSet currently estimates S&P 500 earnings growth of 27.3% for the third quarter and 24.9% for the fourth quarter. Those forecasts indicate that analysts expect profit growth to remain exceptionally strong through the rest of 2026.

That creates opportunity, but also risk. The more optimistic the forecast, the more sensitive share prices become to even modest signs of slowing momentum.

Bottom line

The early results suggest that US corporate earnings remain strong and that profit growth extends beyond a single sector. But the headline figures overstate the underlying improvement because of Alphabet’s unusually large investment gain.

The busiest week of the season will offer a better test. Investors should look beyond earnings beats and focus on operating margins, cash flow, capital expenditure and management guidance.

The decisive issue is not whether US companies had a good second quarter. It is whether their underlying performance can keep pace with the ambitious earnings forecasts and valuations now reflected in the market.