Last earnings season knocked it out of the park, and Wall Street's response is to crowd the plate and dare the quarter to throw harder.
Analysts have pegged the expected growth rate at 23.6%. If that hits, it'll be the eighth straight quarter of double-digit growth and the second consecutive quarter above 20%.
Companies almost always come in over the estimate, so the final number could land closer to 29%. Earnings have beaten the initial projection in all but three quarters over the past decade, by an average of 7.4%. Over the last year, that margin widened to 9.2%.
Last quarter, growth beat its opening number by roughly 15% and finished at 28.8%, a hair under the 32% posted in the fourth quarter of 2021. Expectations this high change the payout. A strikeout costs more than a hit pays, and that asymmetry suggests a bumpy few weeks ahead.
The other thing to watch is how the hyperscalers and the companies orbiting them talk about their AI infrastructure plans. That spending has done a lot of the heavy lifting for market returns, so any wobble in management's tone carries weight the numbers alone don't. The whole cycle leans on these firms continuing to fund an enormous buildout. The open question is whether that spending is profitable…or just expensive.
We favor the same kind of company we always have: the ones that can raise prices without losing customers and pivot when they need to. In a market that keeps throwing curveballs, these companies are more likely to remain standing.
Source: FactSet
Advisor Angles
- A scary headline lands and the phone rings. Growth pegged at 23.6% is good news, but high expectations change how the market reacts. When strength is already assumed, a company that merely meets the number can still sell off, and a miss gets punished out of proportion. That's why a strong season and a jumpy market aren't a contradiction, and it's the answer when a client asks why the market is bouncing around while the headlines say earnings are strong.
- The “Is AI a bubble" question comes up. It depends on whether the spending pays off. Big Tech has poured enormous money into AI, and that spending has driven a real share of the market's gains, so what matters isn't how much they spend; it's whether it actually earns them anything. That difference (a trend that lasts versus one that just gets expensive) is what the next few quarters will settle.
- A client's friend or relative is up big and suddenly an expert. There's always someone who conflates a good streak with skill. A concentrated bet paying off and a portfolio built to survive a bad year are two different things, and the guy bragging at the barbecue tends to only mention the quarters that worked.