TLDR
- 84% of S&P 500 companies reporting above consensus estimates, with blended earnings growth at 27.1% year-over-year
- Five of the Magnificent 7 reported last week; Alphabet surged 12%, Meta dropped 9.8% on capex concerns
- Apple rose 3.4% after raising earnings guidance, driven by strong iPhone 17 sales in China
- Investors are cautious about AI capital spending as returns on profit margins remain unclear
- 128 more S&P 500 companies report this week, including Pfizer, AMD, Walt Disney, and McDonald’s
With 63% of S&P 500 companies having reported first-quarter results, earnings season is running well ahead of expectations. The blended earnings growth rate stands at 27.1% year-over-year, more than double the 13.2% growth analysts predicted at the start of the quarter.
Five of the so-called Magnificent 7 tech stocks reported last week, and while all five beat earnings estimates, investor reactions were mixed.
Alphabet was the standout winner, rising 12% for the week. Strong search results and Google Cloud growing 28% drove the gains, along with a growing backlog of cloud orders.
Meta fell 9.8% despite beating earnings estimates. Investors were rattled by another upward revision to the company’s capital expenditure plans for artificial intelligence infrastructure.
Amazon had a strong week across the board. Its cloud division, AWS, continued to grow, and better-than-expected guidance pushed the stock up 1.6%.
Microsoft posted solid cloud growth through Azure, but the division remains capacity-constrained. Higher-than-expected capital spending and slightly weaker guidance for next quarter pushed the stock down 2.4%.
Apple was a bright spot, rising 3.4%. The company raised its earnings guidance, helped by strong iPhone 17 sales, particularly in China.
AI Spending Raises Questions
One theme running through earnings season is investor wariness around AI capital expenditure. Big tech companies are spending heavily on AI infrastructure, but the returns on those investments are not yet showing up clearly in profit margins.
It remains uncertain when those returns will materialize, and analysts are not ruling out that it could take well beyond 2027.
Despite that uncertainty, the heavy flow of money into US AI infrastructure makes it difficult to build a strong bearish case for stocks overall.
What’s Ahead This Week
128 S&P 500 companies are scheduled to report earnings this week, making it the second busiest week of the season. Companies on the docket include Pfizer, Advanced Micro Devices, Walt Disney, and McDonald’s.
Nvidia is the only remaining Magnificent 7 company yet to report, with results scheduled for May 20.
The full-year 2026 earnings growth estimate for the S&P 500 currently sits at 20.6%.
Beyond earnings, markets will also be watching developments around Iran-related tensions, which have pushed oil prices higher. The monthly jobs report is also due, with nonfarm payrolls expected to show an increase of 62,000 and the unemployment rate holding at 4.3%.
Small-cap stocks quietly had another solid week and have built a strong year-to-date performance, even as the Magnificent 7 underperformed despite their strong earnings numbers.
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