Q2 Earnings Growth Advanced Despite Tariff Uncertainty and Currency Shifts

Key Takeaways

Global earnings growth stayed mostly positive in the second quarter as companies adapted to a still-unsettled tariff environment.

Spending on AI supported growth for select companies, as did a weaker dollar and new U.S. tax rules.

This quarter’s earnings highlights include:

• S&P 500^® Index companies reported positive earnings growth as the majority of companies beat estimates for the quarter.¹ Communication services, IT and financials were leaders. The weakest areas were energy, materials and consumer staples.

• European companies reported stronger year-over-year earnings growth compared to the previous quarter.² IT, materials and financials were the strongest sectors. Energy, consumer discretionary and communication services were the weakest.

• Japan recorded negative earnings growth again.³ Materials, energy and consumer discretionary were the weakest sectors. Utilities, real estate and health care served as sources of strength.

• Emerging markets ended with earnings growth led by real estate, IT and materials.⁴ Consumer discretionary, industrials and consumer staples were areas of weakness.

Five Trends Impacting Second-Quarter Earnings Growth

1. AI Capital Spending Surges Among Hyperscalers

Alphabet, Amazon, Meta and Microsoft — the “hyperscalers” building and operating massive data centers — are expanding their already sizable capital investments, which are dominated by AI.

According to current forecasts, their CapEx this year could rise 53% over what was spent in 2024, as seen in Figure 1. By comparison, the rest of the S&P 500 companies are expected to increase their total capital expenditures by roughly 7%.

Figure 1 | Hyperscalers’ CapEx Spending Grows Faster Than the Rest of the S&P 500

^{Data from 12/31/2023 – 12/31/2026. Source: FactSet, Company Reports. Estimates are as of 8/6/2025 and are subject to change. Hyperscalers: Amazon, Alphabet, Meta and Microsoft. The chart represents total CapEx (not only AI CapEx) for the four hyperscalers vs. the rest of the S&P 500. Forecasts are not a reliable indicator of future performance.}

The higher spending benefits the firms supporting the buildout, including chipmakers like NVIDIA, but the hyperscalers are also reporting stronger results related to AI.

Alphabet, Amazon and Microsoft saw growth in their cloud businesses, while Meta said AI has helped it improve efficiency and improve advertising conversion rates.⁵

2. Companies Contend with Tariff Uncertainty

The tariff outlook has cleared somewhat after the U.S. announced trade deals with the European Union, South Korea, Japan and other nations in July.

Despite these new deals, some companies say they’re unsure how higher tariffs will impact their performance. As a result, they have lowered, qualified or withdrawn their guidance.

ASML, whose photolithography machines are used to make semiconductors, said that it’s preparing for growth next year, but warned about “an increasing level of uncertainty.”⁶

One of the biggest sources of global tariff uncertainty might hang around until this fall, at least. The U.S. and China haven’t ironed out their trade disagreements, although they suspended the worst of the threatened tariffs until November.⁷

3. New U.S. Tax Rules Could Free Up Cash

The One Big Beautiful Bill, which President Donald Trump signed in July, comes with several provisions designed to help businesses. Among them:

• Permanent restoration of 100% bonus depreciation. Companies can deduct the full cost of eligible assets during their first year of service, instead of amortizing them over multiple years.

• More generous rules on business interest deductions.

• The ability to immediately expense the cost of domestic R&D.

According to one analysis, the companies that make up the S&P 500 could see an 8.5% increase in free cash flow, worth roughly $148 billion.⁸

This may provide more money for capital investments, stock buybacks and other initiatives. AT&T estimates that it will save $6.5 billion to $8 billion in taxes over the next couple of years.⁹ The company plans to spend some of these funds speeding up the buildout of its fiber internet.

4. A Weaker Dollar Helps and Hurts Earnings

We think weakness in the U.S. dollar could act as a tailwind for U.S. multinationals.

A cheaper dollar benefits these companies in two ways. First, any amount they earn internationally becomes larger when translated into dollars. Their exports could also become comparatively less expensive than foreign competitors, another boost.

The trend has already started showing up in companies’ reporting. During its most recent earnings call, Netflix raised its full-year forecast by roughly $1 billion and cited the weaker dollar as the reason.¹⁰

Not everybody benefits. A Japanese or European company’s U.S. earnings would appear smaller when translated into the yen or euro. Ferrari and Puma, for example, pointed to currency headwinds in their recent earnings calls.¹¹

5. Consumer Spending Remains a Question Mark

Consumer spending appeared resilient during the quarter, but companies are spotting signs of weakness.

On the one hand, American Express logged a record quarter for cardholder spending.¹² Visa said U.S. spending growth stayed strong for discretionary and nondiscretionary purchases.¹³

At the same time, some businesses are reporting that U.S. consumers are dialing back.

Mondelez, the snack and confection company, said its North American revenues dipped partly because consumption softened.¹⁴ Europe and emerging markets gained during the same period.

Low-income households could be a particular area of concern.

According to McDonald’s, quick-service restaurants overall experienced a double-digit decline in visits from low-income consumers.¹⁵ This is a concern for McDonald’s because these customers visit their locations more often than other groups.

Full-Year Earnings Forecast: Growth Expected Across Regions

Analysts are forecasting that S&P 500 earnings growth will hit 7.36% for the third quarter and 10.59% for the full year.¹⁶

According to analysts, Japanese earnings growth could turn positive with 6.79% for the quarter and 2.27% for the year.¹⁷ European firms are expected to report 4.44% earnings growth in the third quarter and 12.17% for the year.¹⁸

In emerging markets, forecasts call for earnings growth of 4.63% for the third quarter and 11.38% for the full year.¹⁹