Home • Articles • Q2 2025 Earnings Analysis: 5 Key Investment Lessons from US Tech Surge vs European Struggles
Q2 2025 Earnings Analysis: 5 Key Investment Lessons from US Tech Surge vs European Struggles
By Boring Money
11 Aug, 2025
As the dust settles on the second quarter earnings season, investors can reflect on the clues it’s provided for market activity in the remainder of 2025. It was good news for US investments, with many of the technology giants proving they can still deliver. But there was less joy for European investors, where the earnings picture was a tougher landscape.
US stocks outperform while European markets struggle
The overall picture in the US was relatively upbeat. Data from Factset shows that 82% of S&P 500 companies reported earnings per share ahead of market expectations. The average earnings growth rate was 10.3%, the third consecutive quarter of double-digit earnings. Equally, the results prompted analysts to upgrade their expectations for the third quarter, albeit only by 0.1%. The strongest upward revisions came from energy, technology, and communications services.
However, there was a gap between US and European earnings. European companies were hurt by the uncertainty over tariffs and a stronger Euro. Equally, some of the region’s flagship sectors, such as luxury goods and healthcare, struggled for idiosyncratic reasons – Novo Nordisk warned on lost market share to Eli Lilly, for example.
There were areas of strength, such as banks and other financial companies, but these could not compensate for the weakness elsewhere.
AI-driven tech sector powers market
That’s not to say that tariffs aren’t having an impact on US companies too. US strength was mainly led by the technology sector, which continues to benefit from the expected growth of artificial intelligence (AI). Lori Calvasina, Head of US Equity Strategy at RBC Capital Markets, says:
Much of the Q2 growth is tilted toward two sectors which house large technology and artificial intelligence (AI) stocks: Information Technology and Communication Services, both of which are pacing at over 20% year-on-year growth.
She points out the Information Technology sector has an “unusually high” 22% year-on-year revenue growth rate. The only other sector posting double-digit revenue growth is healthcare.
Tariffs cause billion-dollar hit for auto giants and Apple
Other US companies are hurting. General Motors, Ford, and Stellantis all reported significant tariff impacts in their recent earnings calls. For example, Ford said it took a US $800-million hit for the second quarter as a result of tariffs, while General Motors said tariffs cost it $1.1 billion.[1]
It’s not just carmakers: tariffs were a factor in Apple’s disappointing results, with the company taking a $1.1bn hit in the second quarter. Stanley Black & Decker also reported a significant hit. For all these companies, passing the costs onto consumers is an option in the longer term, but it requires greater certainty on the ultimate shape of the tariff regime.
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The simple message for investors would be to pause on their newfound enthusiasm for Europe, continue to buy US technology, and avoid ‘difficult’ sectors such as carmakers. However, in reality, it may be too soon to be drawing firm conclusions. Calvasina says:
We have a long way to go to understanding how the recent changes in trade policy will impact demand and 2026 outlooks.
Greg Fuzesi, Chief Euro Area Economist at JP Morgan, agrees:
Despite greater clarity, the overall impact of the new tariffs remains to be seen. Tariffs may at first squeeze the margins of some EU exporters to the US, but could eventually fall on US importers and customers, while EU export volumes may fall only if US demand weakens or if US producers can boost production to replace imports.
European companies have yet to benefit meaningfully from the fiscal stimulus packages put in place by European governments (particularly Germany) and this may start to come through later in the year.
Equally, not all US technology companies are thriving. Apple had a difficult quarter, as did Amazon. Amazon beat expectations with its revenue up 13.3% year over year to $167.7bn[2], but did not meet expectations on its operating income, and there remain questions over whether Trump’s tariffs will hurt the international sellers that are an important part of its business.
Tesla’s problems have been well-documented, but its second quarter earnings also missed expectations. Its revenue fell 12% year-on-year to $22.5 billion.
Valuation warning as tech giants drive P/E ratio peak
The US technology giants remain expensive relative to their peers and to their own history, particularly after their recent bounce.
The forward 12-month P/E ratio for the S&P 500 is 22.2. This P/E ratio is above the 5-year average (19.9) and above the 10-year average (18.5).
This is substantially driven by the technology companies.
Calvasina says investors need to be aware that earnings for technology companies are converging with the rest of the S&P 500, even if they are now converging more slowly:
As a group, Magnificent 7 earnings growth has come down substantially - partly due to difficult year-over-year comparisons and because their growth rates have been diverging more among each other. Nevertheless, the collective Magnificent 7 earnings growth rate still exceeds the rest of the S&P 500, and this trend is forecast to continue until Q1 2026.
There are areas where earnings are strong, but where investors aren’t paying multi-year high multiples. In the UK, for example, the FTSE 100 has been lifted by strong earnings from companies such as Rentokil, Unilever, Rolls-Royce, and Standard Chartered.
The European financial sector has been strong. Smaller companies across the UK, Europe and the US have had the advantage of a more domestic focus, less exposure to global supply chains, and therefore to tariff problems. They have seen their share prices recover in recent months.
The Q2 earnings season gave only a hint as to the longer-term consequences of the tariff regime and how businesses will respond. With clarity finally emerging in recent weeks, they can set prices accordingly and investors can judge whether tariffs will be felt more by US consumers, or in the earnings of global companies.
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