3 Takeaways from the Strong Q3 Earnings Season

Key Takeaways

• US companies delivered strong earnings results in the third quarter, thanks to robust demand for AI infrastructure and a resilient consumer.
• Despite concerns about AI overbuilding, analysts don’t see signs of a supply and demand mismatch.
• A weakening labor market or additional pressure from tariffs could weigh on consumer spending and dent future earnings.

Can anything slow corporate America down?

As the third-quarter earnings season wraps up, all signs point to another strong showing on Wall Street, despite lingering threats of tariffs and a cooling labor market. With more than 90% of companies in the S&P 500 Index reporting so far, year-over-year earnings growth for the quarter is set to come in at 13%, according to FactSet’s consensus estimates. That’s up from the 8% growth analysts expected over the summer, though it’s worth remembering that growth estimates often fall in the months ahead of reporting. It’s also the fourth consecutive quarter of double-digit growth.

From the breadth and magnitude of earnings beats to the guidance for the upcoming quarter, the numbers were “pretty positive on almost every dimension,” says David Lefkowitz, head of US equities at UBS Global Wealth Management. More than 80% of companies have exceeded analysts’ expectations, according to FactSet.

At the end of October, Goldman Sachs analysts found that the frequency and size of positive earnings surprises in the quarter so far was second only to those seen during the covid reopening period of 2020-21. Savita Subramanian, head of US equity and quantitaive strategy at Bank of America, described the results as an “iron-clad fundamental case for equities” in a recent note to clients.

The artificial intelligence boom and a resilient consumer have helped bolster those fundamentals, but as always, headwinds remain. Here are four key takeaways for investors from the third quarter, and more on what to expect in the coming months.

Tariffs Have Yet to Dent Company Profits

Earlier this year, investors were laser-focused on how President Donald Trump’s new tariffs would affect corporate bottom lines. US firms were unsure, with many suspending guidance and issuing warnings about a highly uncertain outlook. But so far, US companies have taken the levies in stride.

“It’s remarkable that despite tariffs of over 11% being paid, S&P 500 profit margins overall actually expanded from Q2 to Q3,” says Jeff Buchbinder, chief equity strategist at LPL Financial. “Few expected that in this policy environment.”

Lefkowitz of UBS points out that despite tariff-related disruptions this spring, the market is on track to achieve analysts’ original expectations for full-year earnings growth. In January, FactSet consensus estimates pointed to 14.4% earnings growth for 2025. As of Tuesday, earnings estimates for the full year 2025 were 12%.

AI Buildout Continues

Front and center over the past few weeks have been concerns about the longevity of the AI boom. Tech stocks have lost momentum after a monthslong rally, amid investor concerns that valuations may be too stretched and that expectations for future earnings and stock performance from the biggest companies in the market may be unrealistic.

But from an earnings perspective, analysts say the fundamentals look solid. Tech firms like Alphabet GOOGL/GOOG, Microsoft MSFT, and Meta Platforms META said they planned to continue pouring tens of billions into building the infrastructure that underpins AI applications.

“The clear message is that there’s still a lot of demand coming in even stronger than what markets had been expecting,” says Lefkowitz of UBS. “I don’t think there are any signs of overbuild.”

The information technology sector of the S&P 500 Index (which includes Microsoft, Apple AAPL, and semiconductor firms, but excludes Alphabet, Meta, and Amazon AMZN) is on track to grow its earnings by 27% year over year in the third quarter, double the growth rate of the wider industry. Nvidia NVDA is included in that estimate; the firm will report its official results next week.

“Once you see stocks sell off on strong earnings and guidance like we’ve seen over the past week, it’s a clear sign that stocks are pricing in too much optimism [rather than a fundamental issue with earnings],” LPL Financial’s Buchbinder recently told Morningstar.

Resilient Consumers

Robust consumer spending also supported earnings in the quarter, even against the backdrop of a cooling labor market and economic uncertainty. Lefkowitz points to strong results from Visa V, Mastercard MA, and major banks as evidence of broad-based strength in consumer spending, though he notes that there are some pockets of weakness under the surface.

That strength in spending could weaken in the months ahead if more tariff costs trickle down from US firms to prices. “It’s possible that some of the resiliency is due to the fact that prices have not fully adjusted to reflect the full tariff impact,” Lefkowitz says. On the other hand, new tax benefits slated to take effect in 2026 could offset some of that pressure and act as a tailwind for spending.

What’s Next for Earnings?

While the fundamental picture looks strong today, risks remain. Bank of America’s Subramanian says earnings in future quarters could be impacted by a weaker consumer if the labor market continues to cool and layoffs mount. She wrote that the resolution of the Supreme Court case concerning the legality of Trump’s tariffs could also weigh on earnings. At the same time, risks surrounding overbuilding and overborrowing in AI “warrant caution.”

Looking ahead, Lefkowitz is optimistic. He expects 10% profit growth for the S&P 500 in 2025 and 7.5% growth in 2026, with the balance of risks tilted toward future gains. That could help propel the bull market in stocks even higher.