US earnings preview: getting bullish on tech again

With investors optimistic about earnings growth this results season, Graeme Evans looks at potential positives to watch for.

23rd July 2025 13:29

Graeme Evans from interactive investor

Growing optimism over the resilience of Wall Street’s large-cap tech giants faces its first big earnings test tonight when Google owner Alphabet Inc Class A (NASDAQ:GOOGL) joins Tesla Inc (NASDAQ:TSLA) in the results spotlight.

Alphabet shares are barely changed across this year, meaning they have lagged the post-tariffs rebound of NVIDIA Corp (NASDAQ:NVDA), Microsoft Corp (NASDAQ:MSFT) and Meta Platforms Inc Class A (NASDAQ:META) among the Magnificent Seven.

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Overall, the Nasdaq has climbed more than 35% from its April lows, while the S&P 500 index has ticked off more records after Bank of America reported the largest three-month increase in tech sector allocations since March 2009.

The renewed enthusiasm of professional investors has been fuelled by a belief that earnings growth will remain robust on the back of ongoing artificial intelligence (AI) deployment and adoption.

This was backed up by the recent results of Taiwan-based semiconductor foundry Taiwan Semiconductor Manufacturing Co Ltd ADR (NYSE:TSM), which posted figures that surpassed market forecasts for both earnings and forward guidance.

UBS expects profit growth for the Magnificent Seven to remain strong at around 20% in the second quarter, which compares with near 30% growth in the previous four quarters.

It is looking for evidence of solid earnings progress after the recent surge in valuations was driven by an uplift of Wall Street’s price/earnings multiples.

UBS added: “While we remain structurally bullish on AI, we would prefer to see further gains underpinned by upward earnings per share (EPS) revisions rather than valuation expansion alone.

“Sustainable growth in the sector will ultimately depend on continued improvement in profitability and operational performance.”

Fears over AI-related competition mean Alphabet heads into tonight’s results trading on about 18 times Bank of America’s forecast earnings, well below the 10-year average of 22 times.

BofA raised its price target by $10 to $210 ahead of the results, which it expects will show consensus-beating growth in second-quarter revenues to $81 billion and earnings per share in line with forecasts at $2.15.

The bank said potential positives to look out for included commentary suggesting ad spend has accelerated since April and evidence that AI integration is aiding monetisation. It also flagged a YouTube beat on softer comparatives and Cloud strength from additional capacity.

It concluded: “With core Google valued at 12 times 2026 earnings in our sum of parts, we continue to see a favourable risk/reward. Buy.”

In the first week of the US earnings season, 59 S&P 500 companies accounting for 20% of index earnings beat consensus estimates by 8% in aggregate. The 73% of companies that performed ahead of Wall Street forecasts compared with a post-week 1 average of 68%.

The major banks were among those ahead, although in most cases their outperformance wasn't enough to lift their share prices after strong rallies prior to the results.

Citigroup Inc (NYSE:C) was an exception after announcing plans to raise its buyback. Bank of America said: “Overall, banks noted an improving credit environment with no clear signs of weakness in the consumer.”

As the earnings season begins to broaden, the bank’s analysts will be listening for commentary on companies’ ability to mitigate tariff impacts plus their capital expenditure outlooks.

While there is still uncertainty on where tariffs will land, the bank estimates that trade levies could be a 5% direct hit to annual S&P 500 operating income before any mitigation efforts.

The bank adds that it expects the gap between the earnings growth of the Magnificent Seven and the other 493 companies to continue to narrow but not converge until later in 2026.

Tesla earnings are due to show a sharp fall to about 39 cents a share when results are published after tonight’s closing bell, reflecting a 13.5% decline in quarterly sales volumes. Alongside the figures, analysts will be looking for an update on its AI and robotaxi progress.

Tesla and Apple Inc (NASDAQ:AAPL) shares have been the weakest performing of the Magnificent Seven stocks so far this year, falling 18% and 14% respectively.

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