Earnings Remain Resilient, but Outlook Softens
May 2, 2025
The market loved the Microsoft MSFT and Meta Platforms META results, liked parts of the Amazon AMZN report, but didn’t like the Apple AAPL numbers. With these reports, we now have Q1 results from 6 members of the ‘Magnificent 7’ group.
The aggregate growth numbers for the group are impressive, but there is a considerable variance among the Mag 7 players. The year-over-year earnings growth rates range from -56.8% at Tesla, +4.8% from Apple, +42.6% from Amazon, and +46% from Alphabet.
The chart below shows the group’s blended Q1 earnings and revenue growth relative to what was achieved in the preceding period and what is expected in the coming three periods.
Image Source: Zacks Investment Research
The companies are sticking with their capex plans, which has remained a sticking point with market participants in recent quarters. The DeepSeek shock notwithstanding, they all see continued spending on building out their AI infrastructure as critical to their long-term competitive positioning. For some, like Alphabet’s Google search franchise, is seen as under threat in the emerging AI world, and the company remains determined to defend its territory.
Amazon, the leader in the cloud space, showed decelerating growth, which they pinned on capacity constraints in its datacenter assets. Revenues in the cloud business (Amazon Web Services) were up +16.9% to $29.3 billion, just a hair below consensus estimates. This is down from +18.9% year-over-year growth in AWS revenues in the preceding period (2024 Q4) and +19.1% in the quarter before that (2024 Q3).
In other words, a steady decelerating growth trend in the cloud unit’s revenues. The deceleration in Amazon’s cloud revenues was expected and also in line with what we had seen from Alphabet. Revenue growth trends for Microsoft’s cloud business were much better compared to what we saw from Alphabet and Amazon.
We suspect that some in the market had been hoping that Amazon’s cloud revenues would show the type of growth momentum that we saw from Microsoft. Amazon’s cloud numbers aren’t bad, but they aren’t great.
Amazon’s modestly lowered Q2 earnings guidance wasn’t tariffs-related, but rather a function of the timing of certain operating expenses. The company’s revenue guidance aligned with consensus expectations, spotlighting the resilience of the company’s business model in this challenging operating environment. This is particularly so on the retail side, where roughly half of the sellers on the site are based in China, and even the other half that are domestically based source a significant proportion of their inventory from that market. Looked at this way, Amazon’s Q2 guidance is fairly reassuring.
Of these Mag 7 players, Apple had the most pronounced tariff impact, with June quarter gross margins impacted by about 100 basis points. Given the all-around uncertainty, the company didn’t provide a lot of color on the period. For the March period, Apple’s earnings increased +4.8% on +5.1% higher revenues.
The chart below shows the performance of Microsoft (up +5.3%), Meta (down -14.5%), Amazon (down -16%) and Apple (down -16.1%) relative to the Zacks Tech sector (down -12.3%) and the S&P 500 index (down -9.1%).
Image Source: Zacks Investment Research
Apple’s underperformance has more to do with its China exposure than anything else. The company has good plans in place to shift iPhone assembly to India, particularly for shipments to the U.S. market. But the stock’s performance suggests that the market remains skeptical of the plan’s success.
The other aspect of the company’s exposure to China is the market’s position as a significant contributor to revenues and earnings. To that end, Apple is not only faced with regular competitive pressures from local rivals, but also has to contend with its status as an American consumer brand in a Chinese environment when local consumers may be less inclined to patronize it on nationalist grounds.
The chart below shows the Mag 7 group’s earnings and revenue growth picture on an annual basis.
Image Source: Zacks Investment Research
Please note that estimates for the Mag 7 group have started coming under pressure lately after remaining very strong over the last two years. The better-than-expected Q1 earnings results have helped reverse this negative trend, at least for now. Today’s +11% earnings growth expected this year is up from +9.9% earnings growth expected last week, but down from +15.7% that was expected three months ago.
The chart below of aggregate full-year 2025 dollar earnings shows how this aggregate total has evolved over the past six to seven months.
Image Source: Zacks Investment Research
Please note that the Mag 7 group is on track to bring in 23.9% of all S&P 500 earnings in 2025, up from 23.2% of the total in 2024 and 18.3% in 2023. Regarding market capitalization, the Mag 7 group currently carries a 30.6% weight in the index. If this group of mega-cap companies was a stand-alone sector, it would be the second biggest in the S&P 500 index, just behind the Technology sector at 38.7% and above the Finance sector at 13.5%.
We have over 1300 companies on deck to report results this coming week, including 94 S&P 500 members.
The bellwethers reporting this week range from Ford, Disney, Warner Bros Discovery, Uber, DoorDash, and many others. By the end of this week, we will have seen Q1 results from more than 90% of the index’s total membership.
Through Friday, May 2nd, we have seen Q1 results from 358 S&P 500 members or 71.6% of the index’s total membership. Total earnings for these 358 index members are up +13.4% from the same period last year on +4.3% revenue gains, with 72.6% of the companies beating EPS estimates and 60.6% beating revenue estimates.
The comparison charts below put the Q1 earnings and revenue growth rates for these index members in a historical context.
Image Source: Zacks Investment Research
The comparison charts below put the Q1 EPS and revenue beats percentages in a historical context.
Image Source: Zacks Investment Research
As you can see here, the EPS and revenue beats percentages are tracking below historical averages, with the Q1 EPS beats percentage of 72.6% for the companies that have reported already comparing to the average for the same group of 78.8% over the preceding 20-quarter period (5 years). The revenue beats percentage is also tracking below the 20-quarter average, but by a larger amount.
Looking at Q1 as a whole, combining the actuals from the 358 S&P 500 members with estimates for the still-to-come companies, the expectation is that earnings will be up +11.6% from the same period last year on +4.5% higher revenues, which would follow the +14.1% earnings growth on +5.7% revenue gains in the preceding period.
The chart below shows current earnings and revenue growth expectations for 2025 Q1 in the context of where growth has been over the preceding four quarters and what is currently expected for the following three quarters.
Image Source: Zacks Investment Research
We noted in recent weeks that estimates for the current period (2025 Q2) have been coming down, with the negative revisions trend expected to accelerate further as companies report results and talk up the extent of uncertainty around their near-term business outlook.
Depending on where the emerging tariff regime settles, earnings estimates will need to come down in response. The ongoing market weakness is essentially a reflection of these diminished earnings expectations. The chart below shows how expectations for the current period have evolved since the start of the year.
Image Source: Zacks Investment Research
The chart below shows the overall earnings picture on a calendar-year basis.
Image Source: Zacks Investment Research
Estimates for full-year 2025 have come under increasing pressure in recent weeks, with the negative revisions trend becoming very meaningful and widespread since mid-February 2025.
Estimates have been cut for 14 of the 16 Zacks sectors, with Aerospace and Construction as the only sectors enjoying modest positive revisions since mid-February. Sectors suffering the biggest cuts to estimates since mid-February include Transportation, Energy, Autos, Basic Materials, Tech, Finance, and others.
The chart below shows how full-year 2025 earnings growth expectations have evolved in recent weeks.
Image Source: Zacks Investment Research
For more details about the evolving earnings picture, please check out our weekly Earnings Trends report here >>>>Earnings Expectations Shift Lower: A Closer Look
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This article originally published on Zacks Investment Research (zacks.com).
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