Earnings Season Heats Up Amid Market Jitters Over New Tariffs

Key points:

• Strong earnings, but rising uncertainty – 11.9% year-on-year growth, but Trump’s new tariffs are raising concerns over trade and corporate outlooks.
• AI remains the key theme – After strong results from Meta and Microsoft, Alphabet, AMD, and Palantir must prove AI is driving real revenue.
• Market volatility is rising – Solid tech and finance earnings, but investors are on edge over trade policies and future guidance.

This earnings season has showcased impressive corporate performance, with around 80% of S&P 500 companies surpassing expectations and overall earnings growth reaching 11.9% year-on-year—potentially marking the strongest quarter since late 2021.

However, the market’s optimism is being overshadowed by recent developments. President Donald Trump has announced significant tariffs: 25% on imports from Canada and Mexico, and 10% on Chinese goods, effective Tuesday. These measures have heightened concerns about global trade tensions and their potential impact on corporate outlooks. In response, financial markets have exhibited increased volatility, and global markets are bracing for potential downturns.

Investors are now closely monitoring how these trade policies might influence upcoming earnings reports and future guidance. With major companies like Alphabet, Amazon, AMD, Palantir, and Novo Nordisk set to report, this week will be pivotal. Investors will be keen to see if these firms can maintain their momentum amid the evolving economic landscape.

A Quick Recap: The Hits, Misses, and Market Buzz

The fourth-quarter earnings season of 2024 is well underway, and with around a third of the S&P 500 companies having reported, we have seen mostly strong performances, but also some notable disappointments among major companies. Here’s an overview:

Strong Performers: Tech and Financials Lead the Way

• Meta posted outstanding results, driven by strong AI-powered advertising growth and cost-cutting measures. The company’s significant share buyback also impressed investors, sending the stock higher.
• Netflix delivered solid numbers, demonstrating that strategic pricing and a compelling content lineup can keep subscribers engaged.
• Major banks like Morgan Stanley, JP Morgan and Bank of America exceeded expectations, indicating that, despite concerns over interest rates, their investment banking and trading divisions remain robust.

Weaker Results: Logistics and Energy Under Pressure

• UPS faced challenges, missing expectations due to slower package volumes, rising costs and weak outlook.
• Energy companies, including ExxonMobil and Chevron, struggled, experiencing weaker refining margins and lower-than-anticipated profits.

Coming Up Next: The AI Story Continues

AI has been a central theme this earnings season, especially following the unveiling of DeepSeek, a significant new AI model, and strong earnings from leading tech firms. Companies like Meta and Microsoft have already reported impressive AI-driven growth. Now, attention turns to Alphabet, AMD, and Palantir to see if they can deliver similar results.

Additionally, Amazon and Novo Nordisk are set to report, covering sectors such as e-commerce, cloud computing, and healthcare. This makes the upcoming week crucial for market sentiment. However, with the recent escalation in trade tensions, companies may also address how tariffs and trade barriers could impact future earnings.

Here’s what to watch this week:

Palantir (PLTR) – Reports Monday, 3 February

What to Expect:

• Revenue is expected to increase 28% year-on-year, reaching approximately USD 775.9 million.
• EPS is forecasted to rise 38% to $0.11 per share.
• AI remains a key driver, but investors will watch for expansion beyond government contracts into commercial sectors.

Investor Watchpoints:

• Government contracts – still a major revenue source, but can Palantir diversify?
• Commercial growth – this is where AI could play a significant role.
• Profitability – Palantir turned profitable last year; can it maintain this trajectory?

Alphabet (GOOGL) – Reports Tuesday, 4 February

What to Expect:

• Revenue is projected to grow by around 13% year-on-year, with analysts estimating USD 81.6 billion in Q4 revenue.
• EPS is anticipated at USD 2.18 per share, reflecting a 33% increase relative to last year.
• AI investments will be under scrutiny – investors are eager to see how these are translating into actual revenue.

Investor Watchpoints:

• Growth in Google Cloud – previously up 22% year-on-year; is it keeping pace with competitors?
• AI monetisation – beyond the investments, how is it contributing to earnings?
• Advertising revenue – particularly from YouTube and Search, which remain Alphabet’s primary revenue sources.

Advanced Micro Devices (AMD) – Reports Tuesday, 4 February

What to Expect:

• Revenue is expected to reach USD 7.5 billion, up 22% year-on-year, driven largely by AI-related demand.
• EPS is projected at USD 1.09 per share, indicating improving margins.
• Focus will be on AI and data centre chips, as AMD competes with Nvidia in high-performance computing.

Investor Watchpoints:

• Data centre and AI chip revenue – how much market share is AMD capturing from Nvidia?
• Consumer demand – are sales of Ryzen processors holding steady?
• Gross margins – expected at 52%, a key indicator of pricing power.

Novo Nordisk (NVO) – Reports Wednesday, 5 February

What to Expect:

• Revenue is projected to grow 22% year-on-year, reaching DKK 81 billion, driven by strong demand for its diabetes and weight-loss drugs.
• EPS is expected at DKK 6.05, up 23% year-on-year.
• Supply constraints remain a concern, as demand for drugs like Ozempic and Wegovy continues to outpace supply.

Investor Watchpoints:

• Sales growth for Ozempic and Wegovy – expected to be up 40%+ year-on-year.
• Supply chain updates – can Novo Nordisk meet the rising demand?
• 2025 guidance – how sustainable is this growth trajectory?

Amazon (AMZN) – Reports Thursday, 6 February

What to Expect:

• Q4 revenue is forecasted at USD 187.3 billion, up 10% year-on-year, driven by strong holiday sales and continued Prime membership growth.
• EPS is anticipated at $1.81 per share, reflecting improvements in cost control and operational efficiency.
• AWS (Amazon Web Services) remains a focal point, as it contributes significantly to Amazon’s profits.

Investor Watchpoints:

• AWS revenue – expected to be around $29 billion, growing at 19% year-on-year.
• E-commerce margins – has Amazon effectively managed logistics costs?
• Advertising growth – Amazon’s ad business grew 26% last quarter; can this momentum continue?

Key Takeaways for Investors

This week will be important for market sentiment, with two of the Magnificent 7 companies reporting. While corporate earnings have been strong so far, market volatility has returned as investors react to Trump’s tariff plans. These trade policies could significantly impact corporate guidance, supply chains, and cost structures in the coming months. Investors should watch not only the headline numbers in earnings reports but also what companies are saying about future risks and economic conditions.

AI remains a dominant investment theme, but there is now a growing need for companies to demonstrate real revenue impact from AI initiatives rather than just long-term potential. Meanwhile, cloud computing will be a critical area to watch, with Amazon’s AWS and Google Cloud under scrutiny for sustained growth.

With tariffs, AI, and earnings momentum all in play, the next few days can potentially set the tone for markets in the months ahead. Investors should be prepared for potential surprises – both positive and negative – as companies address the changing economic landscape.