AI, Consumer Spending Help Power Q3 Earnings

Key Takeaways

Across markets, corporate earnings gained ground during the third quarter as investments in AI, steady consumer spending and other factors supported growth.

Firms gained clarity about the real impact of higher tariffs, allowing them to adjust their operations as needed.

Earnings expectations for small and midsize companies also continued to tick upward, indicating a broadening of growth, as shown in Figure 1.

Figure 1 | Earnings Growth Expectations for Small, Midsize Companies Accelerates

Cumulative Daily Change in Next-12-Month (NTM) Earnings-Per-Share Estimates

^{Data from 1/3/2022 to 11/18/2025. Source: Bloomberg. Past performance is no guarantee of future results.}

This quarter’s earnings highlights include:

• Companies in the S&P 500^® Index recorded positive earnings growth, and the majority of companies beat estimates for the quarter. Information technology, financials and utilities led results.¹ Communication services, energy and consumer staples were the weakest sectors.

• European companies reported weaker year-over-year earnings growth compared to the second quarter.² Real estate, IT and financials were areas of strength. Utilities, consumer discretionary and industrials were the weakest.

• Earnings growth improved in Japan, where communication services, utilities and IT were leaders.³ Health care, industrials and real estate were areas of weakness.

• Emerging markets also experienced positive earnings growth led by IT, materials and health care.⁴ Real estate, consumer discretionary and consumer staples were the weakest sectors.

Five Trends Impacting Q3 Earnings Growth

1. AI Spending Surges Among Leading Tech Firms

Spending on AI continues to drive earnings growth, and it’s helping a wider range of companies, not just the Magnificent Seven stocks.

According to analysts, data center construction is expected to attract trillions in spending over the next several years.⁵ While concerns have emerged about AI’s costs, companies like Alphabet and Meta plan to spend significantly more in 2026.⁶

What kinds of companies are benefiting?

• CapEx spending is flowing to construction firms, utilities and other businesses involved in building AI infrastructure.

• AI has also fueled an upswing in large mergers and acquisitions this year, creating opportunities for banks and other firms that facilitate these deals.⁷

You can see stronger growth in other regions, too, not just the U.S.

Earnings for European tech companies surged during the third quarter of 2025. For example, ASML and BE Semiconductor reported a surge in orders for their chipmaking machinery.⁸

2. Companies Adapt to New Tariff Environment

As ominous as tariffs looked this spring, many businesses appear to have avoided the worst outcomes, at least for now.

In the third quarter, U.S. earnings grew at the fastest rate since late 2021, as measured by the Russell 3000^® Index.⁹ European and Japanese firms also performed better than expected.¹⁰

Many businesses are no longer discussing tariffs as frequently. S&P 500 companies mentioned the word “tariff” 33% less often during their third-quarter earnings calls.¹¹

Why wasn’t the tariff impact worse?

• The U.S. signed a series of new trade deals with lower rates — still higher than before, but better than originally announced.

• Several countries started negotiating new agreements with each other, like the recent deal between the UK and India to lower tariffs.¹²

• Many companies also gained more insight into how tariffs impacted their operations. They learned how much of the increased costs they could absorb and how much they needed to pass on to customers.

Of course, the situation could shift yet again.

The U.S. Supreme Court is evaluating whether the Trump administration overstepped its authority in implementing those tariffs. If the justices decide against the White House, it could create more uncertainty in the business climate.

3. High-Income Households Drive U.S. Consumer Spending

In our view, U.S. consumer spending increasingly reflects a K-shaped economy. The fortunes of high-income households are trending upward while less wealthy ones look wobblier.

The University of Michigan reported a nearly 30% year-over-year drop in consumer sentiment in November. Sentiment worsened across age, income and political affiliation.¹³

Only one group defied the trend. Sentiment rose 11% among the third of the U.S. population that owns the most stocks.

Visa said that consumers overall remained resilient, with U.S. payment volumes increasing by 8% in the most recent quarter.¹⁴ However, the biggest growth could be seen among the highest-spending group.

Likewise, American Airlines noted that its revenue from premium seating continued to outpace less-expensive options.¹⁵

More brands are reporting signs of trouble among low- and middle-income consumers. Fast-casual restaurants Cava and Chipotle are especially concerned about younger guests.¹⁶

Not everyone is suffering, though. Brinker International, the owner of Chili’s restaurants, reported growth in sales and traffic.¹⁷ The CEO said his company has worked hard to position itself as offering better value to customers.

4. European Banks Show Earnings Strength

Banks aren’t usually known as high-growth businesses, but many European firms are enjoying a strong year.

Barclays, for example, has upgraded its 2025 guidance and plans to conduct quarterly stock buybacks.¹⁸ Société Générale, another firm that has offered buybacks, says it’s seeing results from its laser focus on controlling costs.¹⁹

Net interest margins and earnings for many banks continue to expand despite multiple interest rate cuts by the European Central Bank and the Bank of England.

Lower rates can compress banks’ profit margins. However, they also make borrowing more affordable for clients, which could boost demand for lending products. The European Central Bank says demand is improving, although it remains relatively weak.²⁰

Of course, lending isn’t the only way that banks earn money. Revenues from wealth management operations have seen an uptick in 2025, according to research firm CFRA.²¹

5. Japan’s Government Initiatives Push for Growth

Japan’s economy stumbled in the most recent quarter, shrinking for the first time in six quarters.²² The government is already developing a new set of policies to promote growth.

• Japan’s new prime minister has signaled support for key industries, including AI, semiconductors, quantum computing, shipbuilding and others.²³

• The government has announced a stimulus package worth roughly $135 billion.²⁴

• Officials are also considering tax cuts to promote more business investment and household spending.²⁵

• Japan has negotiated smaller tariffs with the U.S., bringing rates from 25% down to 15%.²⁶

These measures build on Japan’s ongoing digitalization movement. This nationwide initiative is pushing government bodies and businesses to modernize their technology.

Leaders are betting that better tech will streamline operations, making Japan overall more efficient and competitive.

Earnings Forecast: EM and U.S. Expected to Lead Growth

Analysts are expecting S&P 500 earnings growth of 7.19% in the fourth quarter and 11.72% growth for all of 2025.²⁷

Forecasts call for European earnings growth of 0.61% in the fourth quarter and 1.48% for the full year.²⁸ In Japan, analysts predict negative earnings growth of 6.91% next quarter, but 2.49% positive growth for the year.²⁹

Emerging markets are expected to produce earnings growth of 16.21% in the last quarter of the year and 10.65% for the year.³⁰