By Neha Shaikh
As the second quarter earnings season unfolds and U.S. markets hover near record levels, Wall Street is finding support from both the artificial intelligence boom and a stream of solid corporate results—even as fresh tariff tensions cloud the outlook.
So far, 297 companies from the S&P 500 have reported, with Q2 earnings growth now estimated at 9.8%, significantly higher than the 5.8% projection at the start of July, according to LSEG data.
AI-Fueled Confidence Powers Through
Investor sentiment has been especially boosted by the continued strength of companies tied to artificial intelligence, with analysts reaffirming the belief that AI will play a major role in shaping future economic and corporate growth.
“The standout performance has come from the big names in tech and AI,” noted Tim Ghriskey, Senior Portfolio Strategist at Ingalls & Snyder. “This is where we want exposure—we’re fully invested in equities and remain confident in that positioning.”
Earlier in the year, confidence in AI-related stocks wavered after the rise of Chinese AI startup DeepSeek, which stirred concerns over escalating competition in the sector. But recent strong showings from Microsoft and Meta have renewed investor belief that heavy investments in AI are delivering returns.
Institutional Caution Remains
Despite the rebound, many large investors are still treading cautiously. Deutsche Bank data shows that overall equity positioning remains only modestly overweight, suggesting institutions have yet to fully buy back into the rally—especially after paring back risk earlier this year amid volatility in high-growth tech stocks.
“Fears around AI demand were likely overdone,” said Viresh Kanabar, an analyst at Macro Hive. With the market now regaining momentum, analysts believe we may see more institutional players return to high-growth sectors, especially if they’re trailing benchmarks.
“If you’re underweight on AI names and trying to outperform, you may be forced to chase them now,” said Art Hogan of B. Riley Wealth.
Tariffs and Volatility Cloud August Outlook
After a 2.2% gain in July, August opened on a more negative note. Stocks retreated sharply on Friday as newly announced U.S. tariffs on dozens of trade partners and Amazon’s weaker-than-expected results weighed on sentiment. A disappointing jobs report added to the risk-off mood.
Still, some analysts are viewing this pullback as temporary. Hogan suggested that any dips—especially in major tech stocks—could be buying opportunities, given how much weight mega-cap tech holds in the broader index.
With companies like Alphabet, Microsoft, Nvidia, Meta, and Amazon making up roughly 25% of the S&P 500, the AI sector’s resilience is helping lift the overall market—even if other areas of the economy are underperforming.
“At the index level, the dominance of these giants tends to mask weakness elsewhere,” said Kanabar.
More Earnings on the Horizon
Next week, investors will turn their attention to upcoming earnings from Disney, McDonald’s, and Caterpillar—all Dow Jones components—which could provide a broader snapshot of consumer demand and industrial performance. If results are strong, the Dow could potentially break above its previous record set in December.
So far, this earnings season has exceeded expectations, with 81% of companies beating analyst forecasts, well above the recent four-quarter average of 76%.
“The second quarter has been much stronger than expected,” Hogan added. “It’s a major relief after the more cautious tone we saw last quarter, when concerns about tariffs and slowing growth weighed on sentiment.”
