Key Highlights
- A remarkable 84% of S&P 500 firms are beating consensus forecasts, with combined earnings climbing 27.1% compared to last year
- Last week saw earnings from five Magnificent 7 members; Alphabet jumped 12% while Meta plunged 9.8% amid infrastructure spending worries
- Apple climbed 3.4% following upgraded guidance, fueled by robust iPhone 17 demand in Chinese markets
- Market participants remain skeptical about AI infrastructure investments as profitability impacts stay murky
- This week brings earnings from 128 additional S&P 500 firms, including Pfizer, AMD, Walt Disney, and McDonald’s
As first-quarter earnings continue to roll in, with 63% of S&P 500 constituents already reporting, the results are substantially outpacing Wall Street’s predictions. The combined earnings growth rate has reached 27.1% on a year-over-year basis, significantly surpassing the 13.2% expansion that analysts anticipated when the quarter began.
Last week brought reports from five members of the elite Magnificent 7 technology group, and though each one exceeded earnings projections, the market’s response varied considerably.
Alphabet emerged as the clear victor, climbing 12% over the five-day period. Robust search performance combined with Google Cloud’s impressive 28% expansion fueled investor enthusiasm, alongside an expanding pipeline of cloud commitments.
Meta experienced a sharp 9.8% decline even after surpassing earnings expectations. The culprit was yet another increase to the company’s projected capital expenditures for AI-related infrastructure, which unsettled shareholders.
Amazon delivered across multiple fronts. AWS, its cloud computing arm, maintained steady expansion, while above-consensus forward guidance lifted shares 1.6%.
Microsoft demonstrated healthy cloud momentum via Azure, though the segment continues facing capacity limitations. Elevated capital spending projections coupled with modestly conservative next-quarter guidance sent shares down 2.4%.
Apple provided a positive surprise, advancing 3.4%. Updated earnings guidance reflected especially strong iPhone 17 performance, with China representing a key growth driver.
Concerns Mount Over AI Infrastructure Investments
A recurring narrative throughout this earnings cycle has been investor skepticism surrounding artificial intelligence capital outlays. Technology giants are deploying massive resources into AI infrastructure, yet the financial returns from these investments haven’t clearly translated into improved profit margins.
The timeline for realizing meaningful returns remains ambiguous, with analysts acknowledging the possibility that tangible benefits may not emerge until after 2027.
Nevertheless, the substantial capital flowing into American AI infrastructure makes constructing a compelling bearish thesis for equities challenging overall.
The Week Ahead
This week marks the second-most active period of earnings season, with 128 S&P 500 members scheduled to announce results. Notable companies reporting include Pfizer, Advanced Micro Devices, Walt Disney, and McDonald’s.
Nvidia stands as the sole Magnificent 7 company still awaiting its report date, which is set for May 20.
Current projections place full-year 2026 earnings growth for the S&P 500 at 20.6%.
Beyond corporate results, market participants will monitor escalating tensions involving Iran, which have driven crude oil prices upward. The monthly employment report also looms, with forecasters expecting 62,000 additional nonfarm payroll jobs and unemployment remaining steady at 4.3%.
Small-capitalization stocks quietly posted another positive week and have accumulated impressive year-to-date gains, contrasting with the Magnificent 7’s underperformance relative to their exceptional earnings reports.
