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For a second consecutive quarter, hyperscaler stocks reacted abnormally negatively to earnings season. Two main issues are plaguing the group and will need to resolve to enable better performance: First, ROIC prospects are diminishing while WACC is rising, resulting in an overall reassessment of what the market is willing to pay for these stocks. Recall, hyperscalers historically commanded a premium relative to the market, but that premium is eroding, reflecting business models that are becoming more asset-heavy. Notably, only a few names currently have valuations lower than they were at the start of the year. We wrote about this in the spring, and continue to see the spread between ROIC and WACC as a critical signal to watch. Second, earnings momentum is working against the Mag-7 at large, a group dominated by the hyperscalers. Mag-7 earnings growth peaked in 1Q and has been decelerating since then. This deceleration in earnings growth naturally leads to more volatility in stock prices, particularly when core businesses show weaker than expected trends, as was the case with Amazon and Alphabet. Mag-7's growth may continue to decelerate until it bottoms in 1Q earnings season next year. We wrote about this in our preview for earnings season. If you would like to see more of the Market Sense research, please feel free to visit us and sign up to subscribe at https://t.co/ElbXTsEpYh!

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9/2/2026 on

Earnings breadth – the percentage of companies posting earnings growth year-over-year – surged to 82.2% in 2Q from 80.6% in 1Q and shows no sign of peaking out just yet. This is one of my favorite indicators for detecting tops in stocks. Breadth hit an all-time high in 2Q18 (at 88%) and began to fade over the subsequent quarters, contributing to the 19.8% peak to trough correction in the S&P 500 that spanned September-December of that year. Likewise, breadth hit another high in 2Q21 (at 86.4%) and when the cooling trend was confirmed two quarters later, stocks began their descent into the 2022 bear market. Similarly, bottoming breadth and 2020 and 2022-2023 helped confirm ongoing recoveries off major bear market lows. While breadth is nearing levels where it’s typically topped out and led to periods of indigestion for stocks, consensus implies that peak could still be at least a few quarters away. In 2Q, every S&P 500 sector posted earnings growth except for health care – led by energy, tech and materials. However, consensus estimates see every group growing in 3Q and that trend could carry through the end of the year before communications and discretionary hit a difficult, comparison-fueled rough patch in 1Q27 (recall the enormous hyperscaler growth in 1Q26 of which Alphabet and Meta dominate communications while Amazon and Tesla headline discretionary). @HB_Wealth @MikeACasper

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8/1/2026 on

So far, the S&P 500 is on track for a 29% earnings advance year-over-year (versus estimates for a 23.2% rise). While the average stock price reaction is in line with historical norms, the season has been extraordinary for the Mag-7. The group is on track to post nearly 40% net income growth year over year, but stocks are posting extreme swings on account of investors’ acute sensitivity to capital spending plans, cash flow trends, and returns on AI investments. On average, Mag-7 stocks have recorded price reactions to earnings results that are nearly double their five-year norm, and four of the six that have reported so far have posted a 5-year record stock price change in the day after results were released. Microsoft and Amazon stocks surged at a record pace in response to strong cloud business results. Microsoft’s positive cash flow surprise helped the stock to a 15.5% advance the day after results. Meanwhile, Tesla and Alphabet sunk on poor cash flow results and confirmed high capex plans. Meta’s earnings miss paired with higher capex guidance to trouble the stock, while Apple’s dampened revenue outlook resulted in a record sell-off after the report.

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7/25/2026 on

It’s proving to be yet another earnings season where hyperscaler spending plans are under the microscope. Major players that reported thus far are beginning to burn cash, inviting questions about the sustainability of future spending and exacerbating valuation concerns. Tesla reaffirmed its $25 billion-plus capex spending plans for 2026 which caused its free cash flow (FCF) to fall by $1.1 billion all while missing its earnings bar. At first glance the automaker doesn’t appear tied to the AI-trade but the company has been building out massive computing capabilities of late to support AI-related endeavors. Likewise, Alphabet’s release highlighted the company’s strong results, clearing both revenue and earnings hurdles, but the stock slid the following day as investors homed in on it’s spending with the company raising its full year capex guidance ($195-205 billion) and FCF falling (down $5.9 billion, the first quarterly cash burn since it went public). Next week will be critical with Microsoft, Amazon, and Meta – three major hyperscalers – set to report. Further cash burn could spell trouble for the market at large given their significant weighting in equity indices. As for capex spending, we continue to watch the spread between weighted average cost of capital (WACC) and return on invested capital (ROIC) for signs that companies might have to start showing some restraint.