This week marks the ramp-up of the earnings season, with LVMH, ASM and SAP set to report in Europe, and above all the US tech giants about to publish. The next 10 days will be dominated by results from Microsoft, Meta, Tesla, Apple, Alphabet and Amazon.
What is unusual this quarter is that the US mega-caps have underperformed over the past three months. In the Financial Times, our colleague Robert Armstrong pinpoints the start of this rotation to October 29, the day of the Fed meeting and Meta's latest results.
The market punished this result, because Meta once again raised its capital expenditure (capex) guidance. More broadly, Q3 results from the hyperscalers arguably marked a peak in optimism around AI, and the start of a phase of doubts.
All of this has resulted in a loss of tech leadership over the past three months, illustrated by the Nasdaq's performance versus the Dow Jones.
Source: MarketScreener. The Nasdaq set its most recent record on October 29, while the Dow Jones last hit a high on January 12.
Exceptional Is the Norm
After several weeks of doubts about AI, followed by a focus on geopolitical issues (from Venezuela to Greenland), the earnings season will be a chance to get back to fundamentals. And from that standpoint, the Magnificent Seven remain well positioned.
For Q4 2025, analysts expect EPS growth of 20.3% for the Mag 7, versus 4.1% for the other 493 S&P 500 stocks, according to FactSet estimates. For 2026, that is 22.8% versus 12.1%, respectively.
This earnings momentum has enabled this handful of companies to outperform and to carry the indices for several years. The S&P 500 has posted three straight years of double-digit gains. The Nasdaq has even delivered three years of returns above 20%.
That is also what justifies lofty valuations (between 30x and 40x forward P/E, excluding Tesla). However, in that case, they must keep beating expectations and raising targets to maintain their stockmarket leadership. This is the challenge of the next 10 days.
