The S&P 500 scraped through last week with mixed results. Although the broader market was down by -2.4%, driven in large part by more tariff melodrama and disappointing jobs figures (for which the Commissioner of the Bureau of Labor Statistics ironically lost her job), the Technology sector broadly delivered versus expectations during a crucial week of earnings announcements.
05 August 2025
Both Meta and Microsoft announced their latest quarterly earnings updates, with the former’s revenue jumping 22% on the previous year thanks to a solid advertising business and Microsoft receiving an unexpected boost from its cloud computing business as well as the brought-forward deliveries of PC shipments as retailers stocked up ahead of expected tariffs. Perhaps more interestingly for the future, both firms remain committed to enormous spending on artificial intelligence which is where they and their rivals see tomorrow’s revenue principally accruing from. For example, Microsoft is committed to spending USD 30 billion on capital expenditures in the third quarter alone while google parent Alphabet plans for the full year entail an USD 85 billion spend.
For investors in the S&P 500 – which really means investors in global equities given the 70% allocation to the US in the MSCI AC World Index – the stakes could not be higher. For some years now, the S&P 500 has been chasing earnings expectations and has now so comfortably outpaced said expectations that the forward price-earnings (P/E) ratio now stands at a cool 23.5x valuation multiple, versus an average ratio over the last thirty years of 18.6x. Some of this persistent excess can be put down to a new culture of retail stock investing in the US which seems to care more for the story than the hard numbers.
App-based platforms like eToro and Robinhood now allow the younger investor swapping tips on Reddit to quickly and easily put their money where their mouth is, and this has had a perversely calming effect on the market amid this year’s geopolitical uncertainty. But as some point, fundamentals will surely matter and the S&P 500 will need to see a meaningful payoff from the AI spending splurge. Right now, only Nvidia has much to show for it but if the rest of Big Tech’s revenue drivers don’t move on from the old stalwarts of online advertising, cloud computing and operating systems in the near future, the market may well have something to say about it.
Soon it will be “show me the money” time…
Chart: S&P 500 forward P/E ratio
From 31 Jul 1995 to 4 Aug 2025
Source: Bloomberg, as at 4 August 2025.
Past performance is not an indicator of future performance and current or future trends.
Past performance is not an indicator of future performance and current or future trends.
Julian Howard is Chief Multi-Asset Investment Strategist at GAM Investments. This blog represents the views of GAM’s Multi-Asset team.
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The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is not an indicator for the current or future development.
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is not an indicator for the current or future development.