Google Emphasizes Artificial Intelligence Focus During Q2 Earnings Reporting Period
Last week saw a significant boost in market optimism, with the announcement of a trade deal framework with Japan and improved sales results in the communication services and healthcare sectors. According to FactSet, these factors were the most significant drivers of the improvement in expected revenue growth.
The trade deal with Japan provides reason for optimism about additional agreements with other nations, potentially leading to further economic growth. However, significant new tariffs are currently scheduled to take effect on August 1, unless an acceptable trade agreement is reached.
In terms of earnings growth, the S&P 500's blended earnings growth rate for the second quarter is at 6.4% year-over-year, and the expected earnings growth rate for calendar year 2025 is 9.6%, according to FactSet. For 2026, the expectation is 13.9%.
The Magnificent 7, comprising Microsoft (MSFT), Meta Platforms (META), Amazon.com (AMZN), Apple (AAPL), NVIDIA (NVDA), Alphabet (GOOGL), and Tesla (TSLA), underperformed primarily due to Tesla's performance. However, these seven mega-cap tech and AI-related stocks are a strong driver of the S&P 500's earnings growth, expected to grow earnings around 17% in 2025, significantly faster than the broader market's growth rate of around 7–9%. They currently account for about 25% of the S&P 500 corporate profits.
The financial and communication services sector had the most significant positive earnings surprises last week, with Alphabet (GOOGL) and Capital One Financial (COF) being the most essential contributors. Notable companies scheduled to release earnings include Merck (MRK), Starbucks (SBUX), Mastercard (MA), Chevron (CVX), Berkshire Hathaway (BRK/A, BRK/B), and four of the Magnificent 7.
This week, 161 S&P 500 companies are scheduled to report earnings. Four of the Magnificent 7 are scheduled to report results this week, with Microsoft (MSFT) and Meta Platforms (META) after the close on Wednesday, then Apple (AAPL) and Amazon.com (AMZN) after the close on Thursday.
The betting odds of a 2025 recession fell to the lowest level of the year, while stocks reached an all-time high. The first look at second-quarter US economic growth comes on Wednesday, with GDP growth expected to rebound to 2.4% after a decline in the first quarter.
Stocks continue to be boosted by the twin forces of better-than-expected earnings and a receding threat of recession. The Federal Reserve (Fed) rate meeting is scheduled for Wednesday, with markets currently pricing in a 66% chance of a 25-basis-point cut at the September meeting.
In summary, the S&P 500's earnings growth is expected to be around 9% for the full year 2025, with quarterly growth rates of about 4.5% in Q2, 7.6% in Q3, and 7% in Q4 2025. The Magnificent 7's high growth is driven by their leadership in AI and technology sectors, which remain key drivers of earnings growth currently. The broader S&P 500 earnings growth is more moderate but remains solid, supporting ongoing market optimism.
| Period | S&P 500 Earnings Growth Estimate | Magnificent 7 Earnings Growth Estimate | |-----------------|----------------------------------|----------------------------------------| | Full Year 2025 | ~9% (range 7% to 10%) | ~17% | | Full Year 2026 | ~14% (some estimates 7%) | Expected to slow but stay ahead of market |
In the technology sector, the Magnificent 7 – Microsoft, Meta Platforms, Amazon, Apple, NVIDIA, Alphabet, and Tesla – are predicted to exhibit significant earnings growth of approximately 17% in 2025, contributing notably to the S&P 500's earnings growth. Concurrently, the financial and communication services sector displays robust growth, with anticipated earnings growth rates of around 9% for the full year 2025. This business expansion is partially driven by the performance of companies like Alphabet and Capital One Financial, with key earnings reports also anticipated from Merck, Starbucks, Mastercard, Chevron, Berkshire Hathaway, and several members of the Magnificent 7.
