The Earnings Party Hits a Wall: Strong Q2 Profits Can't Overcome Macro Fears

by Christine Short of Wall Street Horizon, 8/6/25

Key Takeaways

  • As we enter the second week of peak earnings season for Q2, S&P 500 EPS growth continues to improve, now at 10.3% YoY

  • We’ll get a closer read on the AI trade this week when Palantir and AMD report

  • Several S&P 500 companies reporting this week have delayed their earnings dates, including: Pfizer, McDonald’s, GoDaddy and ConocoPhillips.

Another week of stellar earnings led to the S&P 500 and Nasdaq Composite hitting record levels by Thursday, but what a difference a day makes. By Friday, disappointing Nonfarm payrolls for July (73,000), as well as downward revisions to May and June figures1, sent markets in a tailspin and prompted President Trump to fire the commissioner of labor statistics.2 Add to that strained US-Russia relations3 and a tariff deadline4, and both the S&P 500 and Nasdaq ended the week down 2.5%.

The earnings party started after-the-bell on Wednesday when both Meta and Microsoft blew expectations out of the water for the second quarter, and provided better-than-expected guidance.

Once again, heavy investments in AI were rewarded by investors, both companies have focused on increasing capex to build out AI infrastructure and capabilities and said they will continue to do so. Meta expects 2025 capex in a range of $66-72B, increasing the lower end of the company's previous estimate of $64 - $72B.5 Microsoft said they expect over $30B of capex in the first fiscal quarter, higher than the roughly $25B FactSet analysts were anticipating.6 Those results helped both stocks rocket higher, with Meta shares up 12% by the close on Thursday, and Microsoft up 5%.

Next up were results from Apple and Amazon. Of these two, Amazon was expected to be the standout due to strength from AWS, but when revenue figures from the company’s cloud service underwhelmed investors, especially in comparison to the growth rivals such as Alphabet and Microsoft have seen, the stock fell 7% the next trading day.7 Apple on the other hand, long criticized for its lack of AI investment, beat their FQ3 earnings expectations with strong iPhone sales.8 That was enough to send the stock up 2% in pre-market trading Friday, but that eventually fell apart along with other stocks that day.

With the results from those names as well as the 160 other S&P 500 constituents that reported last week, Q2 growth propelled to 10.3% from 6.4% the prior week. Revenues fell slightly to 4.9% from 5.1% the week prior. Beat rates remain impressive with 82% of S&P 500 companies surpassing expectations on the bottom-line and 79% on the top-line, better than the 1, 5, and 10-year beat rate averages according to FactSet.9