Tech Earnings Estimates Increase Again: What's Going On?
Note: The following is an excerpt from this week's Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
Total Q1 earnings for the 419 S&P 500 members that have reported results are up +12.2% from the same period last year on +4.1% higher revenues, with 73.7% beating EPS estimates and 61.8% beating revenue estimates.
We continue to believe that this earnings season is less about what companies earned in the first quarter of 2025 and more about sizing up the earnings impact of the uncertain macroeconomic backdrop. This is starting to show up in declining estimates for the coming periods.
For 2025 Q2, total S&P 500 earnings are expected to be up +6.4% from the same period last year on +3.9% higher revenues. Estimates for the period have been coming down more than had been the case in the comparable periods of other recent quarters.
Q2 earnings estimates for the Tech sector appear to have reversed course over the last two weeks, with estimates starting to go back up after steadily coming down earlier.
What's Happening to 2025 Q2 Earnings Estimates?
The start of Q2 coincided with heightened tariffs uncertainty following the punitive April 2 nd tariff announcements. While the onset of the announced levies was eventually delayed for three months, the issue has understandably weighed heavily on estimates for the current and coming quarters.
The expectation at present is for Q2 earnings for the S&P 500 index to increase by +6.4% from the same period last year on +3.9% higher revenues. The chart below shows how Q2 earnings growth expectations have evolved since the start of the year.
While it is not unusual for estimates to be adjusted lower, the magnitude and breadth of the Q2 estimate cuts are greater than we have seen in the comparable periods of other recent quarters.
Since the start of the quarter last month, estimates have come down for 13 of the 16 Zacks sectors, with the biggest declines for the Transportation, Autos, Energy, Construction, and Basic Materials sectors.
Estimates for the two largest earnings contributors to the index – Tech & Finance – have also declined since the quarter got underway.
Tech sector earnings are expected to be up +12.8% in Q2 on +9.9% higher revenues. While these earnings growth expectations are materially below where they stood at the start of April, the revisions trend appears to have notably reversed in recent days. You can see this reversal in the sector's revisions trend in the chart below.
Image Source: Zacks Investment Research
In last week's report, regular readers saw this reversal in the Tech sector's revisions trend when we shared the evolution of the sector's full-year earnings growth expectations. The updated version of that chart is reproduced here.
Image Source: Zacks Investment Research
Hard to tell at this stage how durable this reversal in the Tech sector's estimates will prove to be, but the favorable turn in the sector's Q2 estimates at least prove that the shift to the annual growth pace isn't solely a function of strong positive Q1 earnings releases, particularly the Mag 7 players that reported last week. We can see this trend reversal in the estimates for Microsoft MSFT, Alphabet GOOGL, and Meta META.
The current Q2 Zacks Consensus EPS estimate for Alphabet of $2.12 is down from $2.15 on April 4 th, but is up from $2.08 on April 25 th and $2.07 a week prior to that. Similarly, for Meta, the current Q2 EPS estimate of $5.84 is down from $5.94 on April 4 th, but up from $5.70 on May 2 nd and $5.51 on April 25 th. The revisions trend for Microsoft is similar, though the company's current Q2 estimate is modestly higher relative to where it stood at the start of April.
We will be closely monitoring this curious turn in Tech sector estimates.
The Earnings Big Picture
The chart below shows expectations for 2025 Q1 in terms of what was achieved in the preceding four periods and what is currently expected for the next three quarters.
Image Source: Zacks Investment Research
The chart below shows the overall earnings picture for the S&P 500 index on an annual basis.
While estimates for this year have started coming down lately, there haven't been a lot of changes to estimates for the next two years at this stage. The chart below should give you a sense of how rapidly this year's estimates are getting adjusted lower.
Image Source: Zacks Investment Research
Given all-around worries about the economy's growth momentum, it is reasonable to expect these estimates to be lowered further in the days ahead as the tariffs impact starts showing up in data.
The modestly negative GDP read for the first quarter of the year primarily reflected the anticipatory effects of the trade regime, with importers stocking up on supplies ahead of the new levies taking effect.
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