Earnings preview: Big tech dominates

Apple, Amazon, Meta and Microsoft will all report earnings later this week, as we reach the peak of the Q2 season.

By Kathleen Brooks, research director at XTB 

This is a massive week for earnings. Apple, Amazon, Meta and Microsoft will all report earnings later this week, as we reach the peak of the Q2 season. The earnings come at an interesting time, US stocks have reached a record high, but the S&P 500 has not had a daily swing of more than 1% per day in 4-trading weeks, which suggests that investors will need a new driver to give US stocks direction. After this week’s earnings reports, either stocks will continue to extend gains into record territory, or they will falter at these dizzying highs. 

Another interesting development at the start of the week was US stocks overtaking European stocks for year-to-date performance. After making fresh record highs every day last week, the S&P 500 is now ahead of the Eurostoxx 600 index so far in 2025. Thus, the four mega cap tech stocks who report earnings this week, with a combined market capitalisation of more than $11 trillion between them, could have a major impact on market sentiment. 

Semiconductors are one of the top performing sectors in the S&P 500 so far this year, and Nvidia, Meta and Microsoft are the top point gainers in the S&P 500 so far in 2025. Thus, the outcome of these results are critical for the overall index, and a strong set of results from these four tech giants will be needed for the main US indices to continue to extend gains. 

Earnings season has been solid in Q2 so far, with four fifths of companies that have already reported earnings reporting positive surprises. However, markets have reduced their expectations for the Magnificent 7 in recent months. The group of tech giants is now expected to report 16% earnings growth, down from 19% at the end of March, before Donald Trump’s tariffs came into effect.

Tariff impact to be minimal

We do not think that tariffs will have a major impact on these earnings for a few reasons: firstly, tariffs with China were delayed for 90 days, which covers most of the Q2 period. Added to this, chips and other tech exports have been spared the worst of the tariffs. Thus, although the bar is high for the tech behemoths, there are some positive signals. For example, Alphabet, the parent company of Google, has already reported better than expected earnings, which were well received by the markets. The stock price is higher by 11% in the past month, as Google’s CEO announced an extra $10 billion investment in AI, and expects to boost capex spending even further in 2026. 

The Microsoft outlook 

Analysts have boosted their expectations for Microsoft’s revenue and profits for Q2 in recent weeks. The market expects the company to report revenue of $73.89bn, and net income of $25.25bn. They are also expected to post strong free cash flows and a significant uptick in earnings per share. If the company throws in an increased share buyback programe, or a dividend, then it could be a strong pick for investors. 

All eyes will be on its AI spend, and how Microsoft’s enormous capital outlays on AI have boosted productivity to justify an expected small increase in headcount. We expect this headcount to be focused in the US, alongside most of Microsoft’s increased capital spending plans. However, investors will likely cheer Microsoft’s results if there is a clear sign that AI investment is ultimately driving down HR costs in the long term.

At 35 times earnings, the forward Price to earnings ratio is above the average rate for the S&P 500, and investors need to pay up to own this stock. The question is, will they continue to do so? 

Meta: Will AI spending pay off? 

Meta’s results are also released this week. Analysts have also revised up their expectations for sales and profits. Revenues are expected to be $44.83bn, and net income is expected to come in at $19.91bn. However, analysts are also expecting advertising revenue to come under some downward pressure, as Chinese advertisers pulled back in the face of tariff threats in Q2. However, this may have picked up as we moved through the quarter as the 90-day reprieve was implemented. Capital spending is also expected to rise; however, this could be well absorbed by the market, and the stock price has increased in the past week as we lead up to this earnings report. 

The company’s Reality Labs business could be scaled back, in favour of its more popular AI products, including its Llama model’s reasoning capabilities. Investors will be looking to hear more about how its reasoning model can boost both Meta’s own commercial prospects and consumers. If the message is positive, then investors may cheer Meta, even though its stock price is higher by 22% so far in 2025.  

Chart 1: S&P 500 and the Magnificent 7, normalised to show how they move together YTD

Source: Bloomberg and XTB. Past performance is not a reliable indicator of future results. 

Overall, this week’s earnings reports are central to the future direction of the S&P 500, and they are also a big indication of how AI is progressing, and big tech firms are monetising this new technology.