Investing & Performance | 3 September 2025

CIO Update – AI earnings continue to defy estimates

A low bar coming into this earnings season meant the US exceeded expectations due to muted tariff impact and growing demand for artificial intelligence (AI).

As we entered the most recent earnings season – where companies report how their business performed for the previous three months – expectations among analysts were low in the US given higher than usual volatility and tariff-impact fears.

Expectations for US earnings growth were markedly low at roughly 4% year on year. However, earnings smashed past those forecasts, growing 11% compared to the same quarter last year.

Levies Lose their bite

Tariffs played a key role in lowering estimates ahead of this earnings season as investors feared increased costs for US businesses could start taking their toll on profit margins. But tariff delays and trade deals agreed for several trading partners meant businesses managed to keep the impact of tariffs on earnings to a minimum.

ai dominance

The one sector expected to shoulder much of the earnings growth coming into this reporting season was technology – and it didn’t disappoint. It remains a clear frontrunner for US earnings, driven by growing demand for AI. More companies announced their increased spending on the technology, which has led to impressive revenue growth for the facilitators.

The immense pace at which AI innovation is growing coupled with the significant potential of future adoption are driving earnings and market performance year to date. Further utilisation of AI could create new revenue opportunities as well as reduce business costs – something we’re already seeing take effect.

Our view

Investment in AI contributed more to US economic growth in the first half of the year than American consumers. The graph below compares GDP contribution from spending on AI software and information processing equipment compared to consumer spending across all goods and services.

While we don’t expect this to be a long-term trend, the positive impact the technology sector is having on GDP growth could provide further resilience for the US economy should any future headwinds present themselves such as the impact of tariffs. Indeed, while the technology sector had another stellar quarter, we also saw the broadening out of earnings growth contribution from other sectors such as financials which reported earnings growth of 14%.

The global economy has weathered the tariff shock well so far, better than many may had expected a few months ago. The impact of the new levies on companies’ margins might become more apparent in the coming months, or may cause higher than anticipated inflation if firms pass these costs on. But for now, economic and earnings growth are showing healthy momentum.

Past performance should not be taken as a guide to future performance. The value of investments, and the income from them, can fall as well as rise and you may not get back what you put in. You should continue to hold cash for your short-term needs.

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