S&P 500 Earnings Season: Technology Leads as Consumer Spending Shows Early Signs of Fatigue

Q4 2025 Earnings: The Final Scorecard

With approximately 95% of S&P 500 companies having reported Q4 2025 results, the earnings season delivered broadly positive results — though with important nuances beneath the headline numbers.

S&P 500 Q4 2025 Scorecard:

• Blended EPS growth: +14.2% year-over-year (above the 11.5% consensus estimate entering season)
• Revenue growth: +5.8% year-over-year
• Beat rate: 76% of companies beat EPS estimates (vs. historical average of ~74%)
• Revenue beat rate: 62% beat revenue estimates (below historical average)

The gap between EPS beats and revenue beats signals that margin expansion (cost discipline, operating leverage, AI productivity gains) is driving earnings growth more than pure top-line demand. This is a double-edged sword: impressive in the near term, but potentially fragile if cost-cutting measures are exhausted.

Technology: The Earnings Engine

The technology sector once again drove S&P 500 earnings growth, with mega-cap names delivering exceptional results.

Standout performers:

NVIDIA (NVDA) continued its extraordinary run, reporting revenue growth of 78% year-over-year in its data center segment. AI infrastructure spending by hyperscalers shows no signs of deceleration, with Microsoft, Google, Amazon, and Meta all increasing capital expenditure guidance.

Microsoft (MSFT) reported Azure cloud revenue growth of 31%, with AI services contributing meaningfully to the acceleration. Management's commentary on enterprise AI adoption was notably optimistic, with CFO Amy Hood noting that "AI copilot" products are now showing measurable productivity gains that are driving renewals.

Alphabet (GOOGL) delivered its strongest quarterly results in two years, with Google Search revenue growth reaccelerating to +14% as the company successfully integrated AI features without cannibalization concerns materializing.

Meta Platforms (META) continued to harvest the benefits of its 2023-2024 "Year of Efficiency," combining 21% revenue growth with operating margins above 40%.

Consumer: A Tale of Two Markets

The most important divergence in Q4 earnings was between companies serving higher-income consumers (strong) and those serving lower-income consumers (under pressure).

Premium consumer spending holds up:

• American Express (AXP): Card member spending up 9%, Millennial and Gen Z spending growth of 15%
• Marriott (MAR): Leisure travel revenue per available room (RevPAR) +7% globally

Lower-income consumer stress:

• Dollar General (DG): Same-store sales -1.2%; management cited "financial stress" among core customers
• McDonald's (MCD): US comparable sales -0.5%; traffic declines among lower-income cohorts offset partially by higher check averages
• Visa (V): Debit card transaction volume growth slowing vs. credit card; lower-income households reducing discretionary spending

What this means: The bifurcation in consumer spending reflects a K-shaped economy where asset-owning households (boosted by stock market and home price appreciation) continue to spend freely, while wage-dependent, lower-income households are increasingly stretched by cumulative inflation. This is a key risk to watch as Fed rate cuts are delayed.

Healthcare: Steady Outperformance

Healthcare was the second-strongest sector in Q4, driven by pharmaceutical innovation and medical device recovery.

GLP-1 drugs (Ozempic/Wegovy ecosystem): Novo Nordisk and Eli Lilly both raised full-year guidance, with demand for weight-loss medications continuing to exceed supply capacity. Analysts estimate the GLP-1 market could exceed $200 billion annually by 2030, with knock-on effects across insurance, food, and retail sectors.

Medtech recovery: Medical device companies reported strong procedure volumes as post-COVID pent-up demand normalizes and hospitals rebuild procedure capacity.

Energy: Profitability Stable, Growth Questions Loom

Energy sector EPS declined modestly (-3% YoY) as oil prices normalized from 2022-2023 highs. However, free cash flow generation remained strong, supporting elevated dividend payouts and buybacks.

Key variable: OPEC+ production discipline and Middle East geopolitical risk remain the primary swing factors for oil prices. Most energy company CFOs guided for $75-85 WTI oil as their planning base — roughly in line with current spot prices.

The Earnings Outlook for 2026

Consensus estimates for 2026:

• Full-year S&P 500 EPS: $268 (implying ~12% growth)
• Key assumptions: Fed rate cuts of 50bp, GDP growth of 2.1-2.4%, continued AI infrastructure spending

Risks to the upside:

• AI productivity benefits materialize faster than expected
• Fed cuts stimulate economic reacceleration
• Labor market stays tight, supporting consumer spending

Risks to the downside:

• Consumer credit deteriorates faster than expected
• AI capex spending creates capacity overhang
• Geopolitical disruption to supply chains or energy markets

At current S&P 500 levels (~5,300), the forward P/E ratio is approximately 21x — above the 20-year average of 17x but below the tech bubble peak of 27x. Valuations are elevated but not extreme if the earnings growth trajectory is sustained.

Sector Positioning Implications

For investors reviewing their equity allocation:

• Maintain technology exposure but diversify within the sector beyond just mega-cap AI beneficiaries
• Healthcare offers quality at reasonable valuation relative to technology; GLP-1 tailwinds are secular
• Consumer discretionary requires selectivity — premium brands outperform; lower-income exposure underperforms
• Financials benefit from steeper yield curve; select banks with strong credit quality
• Energy is a macro call on oil prices; consider as a portfolio hedge rather than growth driver

This analysis reflects publicly available earnings data and consensus estimates. Not financial advice.