4 Big Takeaways Investors Can't Ignore From Earnings Season

Key Points

• Broadly speaking, companies are doing better than expected.

• Whether or not it's true, the majority of the S&P 500's companies believe the advent of AI plays a role in their future.

• U.S. companies doing business overseas are doing better than average as a result.

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With 96% of the S&P 500's (SNPINDEX: ^GSPC) companies' second-quarter reports now posted, Q2's earnings season is effectively over. And, despite tariff-prompted economic concerns, it was a pretty good one. The index's per-share earnings improved 10.5% year over year, with 77% of its companies beating analysts' earnings estimates. The majority of the S&P 500's constituents raised their current-quarter or full-year profit outlooks as well.

Understanding this bigger picture is important, of course. But, as veteran investors can attest, sometimes the little details can make a big difference to your bottom line.

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With that as the backdrop, here are four key takeaways from the second quarter's earnings season to think about as companies finish up their third quarters and press on to the end of the year.

Image source: Getty Images.

1. Technology companies are driving most of the earnings growth

As usual, technology names saw more than their fair share of growth. Only now, the imbalance has gotten a bit silly. Of the S&P 500's second-quarter per-share profit of $64.53, 23.2% of that was driven by the information technology sector alone, which saw a 42% improvement in its total earnings. Information technology stocks account for 14.6% of the 500 companies in the index.

OK, it's not completely outrageous. We've seen the tech sector produce proportionally more of the S&P 500's total bottom line before, even if extremes like these are relatively rare. And it makes sense given that tech stocks collectively account for roughly one-third of the S&P 500's total value.

Still, it's an imbalance that investors can't afford to ignore. Should something unexpected specifically undermine the technology sector, it could take an oversized toll on the overall market.

2. Artificial intelligence is driving most of tech's growth

This concentration risk goes beyond too much money being exposed to technology stocks. It's industry-specific. And yes, artificial intelligence is that industry. Analytics outfit FactSet reports a record-breaking 287 of the S&P 500's companies mentioned AI at least once during the second-quarter earnings calls, extending a growth trend that was less than 60 counts as of the third-quarter of 2022, right before the launch of ChatGPT sparked an artificial intelligence arms race.

FactSet doesn't ferret out which of these mentions are discussions of supplying AI users with hardware and software, or detail how many of these mentions come from companies simply using these relatively new technological tools. There's no denying the underlying theme, however. That is, one way or another, artificial intelligence is a major growth driver.

3. Doing business in the United States is a bit expensive

Recent corporate results show investors more nuanced information, too, like the fact that it's now more lucrative to do business overseas than it is to serve the American market.

The data: Of the S&P 500 companies that do more international business than within the United States, FactSet says last quarter's revenue only improved 6.2% year over year, yet their earnings grew 14.2%. Conversely, of the S&P 500's constituents that predominantly sell their products or services in the U.S., top lines were up 6.6%, but profits only grew 10.9%.

It's easy to blame import tariffs for the localized headwind, and to be fair, their resulting economic turbulence plays a meaningful role in the matter. However, it's not the only challenge to corporate America's bottom line. A weakening U.S. dollar crimped bottom lines, too.

This is a bit counterintuitive in at least one way. That is, a weaker U.S. dollar makes it more expensive for U.S. consumers to purchase foreign goods, forcing them to buy American-made products instead. There's more net good than bad for American multinational companies, however, when the dollar is weak. A weak greenback means overseas profits are inflated when converted into American dollars. And, even if U.S. companies serve more domestic customers, most of these companies still purchase goods from foreign suppliers. These goods are relatively more expensive when the U.S. dollar doesn't buy as much as it used to.

More to the point for investors, in this environment, you absolutely must understand where a particular company does most of its business, and where it sources its supplies or inventory.

4. Actual expectations are more promising than the rhetoric

Finally, while it feels like several -- perhaps too many -- companies are warning their shareholders of headwinds on the horizon, the numbers say otherwise.

FactSet reports that expectations for the S&P 500's current quarter's year-over-year earnings growth were raised from 7.2% as of the end of June to the now-anticipated growth rate of 7.5%. And, as iShares ETFs' management firm BlackRock points out, 60% of the S&P 500 companies that provide full-year profit guidance raised their outlooks with their Q2 reports, nearly doubling this proportion from Q1's figure.

Just bear in mind that the tailwind isn't terribly uniform. FactSet adds that while a market-leading 82% of the technology sector's companies issued positive guidance for the third quarter of 2025, not a single financial name did so -- they were all negative. Consumer discretionary companies, along with basic materials names, have also been mostly warning investors not to expect too much for Q3.

That being said, it's possible that financial companies are simply attempting to keep investors' expectations low. Nearly 85% of them ended up beating their Q2 earnings estimates, after all. Conversely, being the best-performing (and therefore the highest-valued) sector, technology companies' optimism may already be fully reflected in their stocks' prices. And then some.

The most important takeaway

Just don't become so consumed by every minute detail that you lose sight of the bigger picture. Sure, the little things matter (sometimes a lot!). However, they don't matter as much as the big things regularly do (like the health of the global economy or the market's current long-term direction). So, don't end up suffering from analysis paralysis by overthinking everything. You'll just want to use these details above to better navigate the unknown and fine-tune your judgment calls.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FactSet Research Systems. The Motley Fool has a disclosure policy.