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Earnings season is moving along swimmingly.
All things considered, this summer’s reporting period could have really sucked.
Every CEO could’ve blamed Trump trade tensions for misses in any parts of the business. Meanwhile, the results could’ve straight up not justified the valuations we are seeing in a hot market.
About 135 S&P 500 (^GSPC) companies, or 29% of the index’s market cap, have reported earnings at the time of this writing. Sales and earnings have increased by a solid 6.5% and 7.2%, respectively. The average stock price has increased 1% post-results.
But sometimes Mr. Market gets it wrong during earnings season, in my view.
The market will overly punish a company for something perceived as a big deal in the moment but minor in the grand scheme. Or, it won’t reward a company enough for strong results that feed into a long-term investment case.
Here are five reactions this week from earnings that left me scratching my head.
IBM
What more could the market want from Big Blue?
Software and infrastructure sales are up 10% and 14%, respectively. The company increased its full-year operating margin expectations. CFO Jim Kavanaugh told me the company is finding added cost savings, lifting the margin outlook.
Further, IBM has an AI story to tell — and it’s a good one!
“I think you’re starting to see the beginnings of scale of generative AI, which is accelerating. Last quarter, we did about six billion dollars [of AI business]. Now we’re over seven and a half billion,” Kavanaugh added.
IBM shares finished Thursday’s session (morning after earnings) down 6%.
“We would recommend opportunistic purchases for defensive-minded investors ($310 12-month target), although post-report selling may persist for a short period,” Stifel analyst David Grossman called out.
AT&T
AT&T’s (T) stock barely finished in the green on Wednesday’s earnings day. Similar to IBM, what else could investors have been looking for?
The company gained postpaid phone subscribers in the second quarter, while rival Verizon lost customers (though T-Mobile stole the telecom show — see below). Free cash flow — always an important metric for a telecom — rose $400 million year over year.
And AT&T called out a $6.5 billion to $8 billion cash tax savings from 2025 to 2027 as a result of the One Big Beautiful Bill Act.
“We are investing $23 to $24 billion on a go forward basis each year into our network. Historically, we would have had to amortize that capital and take those deductions over time. The bonus depreciation provisions in the bill allow us to expense those immediately,” AT&T CFO Pascal Desroches told me.
Expect the company to spend a good chunk of these savings on stock buybacks.
The stock got slapped with a top pick call by JPMorgan on Thursday.
“Long-term, we believe AT&T convergence playbook, accelerating fiber build to 50m+ organic locations, owner economics, and go-to-market scale will allow the company to derive industry-leading unit economics,” JPMorgan analyst Sebastiano Petti said.
Chipotle
I get why Chipotle’s (CMG) stock got shredded by 13% post-results. Chipotle is valued as a growth stock, and growth took a hit in the second quarter.
But I don’t believe there’s anything fundamentally wrong. The company is still aggressively opening new stores and has a very devoted customer base. I fancy it just needs to market its value proposition, which it plans to do more of in the third quarter.
Overlooked on the earnings call is Chipotle noting that sales have returned to growth in July. It’s planning to release limited-time offerings in 2026 at a faster pace. And I like how the company is doubling down on restaurant technology.
“2Q was also CMG toughest lap for 2024 share gains, and, even if there is the opportunity for more ownership of recent trends/urgency in tone, we believe it is indeed building/increasingly deploying a marketing/innovation toolbox that will drive growing confidence in a more stable same-store sales trajectory into 2H and beyond,” Citi analyst Jon Tower wrote.
T-Mobile
T-Mobile’s (TMUS) stock gained a solid 5.8% on Thursday after reporting on Wednesday post-market close. I think that is 5% less than the quarter deserved.
The telecom giant easily beat analyst estimates. It gained the most net new customers compared to its competitors. T-Mobile CEO Mike Sievert told me on Yahoo Finance that the company’s steady value messaging is helping it gain market share.
“T-Mobile’s value proposition to customers is elegantly simple. Best network, lowest price,” MoffettNathanson senior analyst Craig Moffett said.
The company also hiked its full-year operating profit margin guidance.
Next catalysts for the company: the upcoming closure of the US Cellular acquisition, a greater pace of stock buybacks thanks to the Trump tax bill, and perhaps more acquisitions.
Alphabet
You have to be kidding me here.
Alphabet (GOOG, GOOGL) is trading at only 19.3 times forward earnings (the S&P 500 is at 24 times), and the stock goes up just 1% on Thursday post-earnings?
Did anyone listen to the earnings call? I did:
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The company said revenue growth accelerated throughout the business. Sales increased 14% year over year in the second quarter, a brisker pace compared to the 12% in the first quarter.
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Cloud business is rocking (positive read-through to Amazon (AMZN) and Microsoft (MSFT) earnings next week).
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Alphabet said it’s not losing key AI talent to the giant wallet of Meta (META).
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The discussion around AI and search was very bullish.
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YouTube is crushing it.
“AI (beast) mode it’s time to close the valuation gap,” KeyBanc analyst Justin Patterson said.
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Brian Sozzi is Yahoo Finance’s Executive Editor and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
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