Goldman Sachs analysts highlighted three key themes emerging from this earnings season that are top of mind for corporate America: the impact of tariffs and an escalating trade war, the strength of the US dollar under the Trump administration, and the developments in artificial intelligence on their businesses.
Analysts led by David Kostin identified the first major issue facing company management teams this earnings season was the growing uncertainty surrounding President Trump’s trade war and the risks of tit-for-tat tariffs with China.
“Tariffs were top of mind during this quarter’s earnings calls as companies were focused on their plans to accommodate potential policy changes under the new administration,” Kostin wrote, adding those companies already discussed “a wide range of plans related to tariffs,” such as “pre-ordering items to get ahead of the tariffs.”
Trade war fears resulted in nearly half of all SP500 companies discussing tariffs during earnings calls. Tariff discussion is back to levels not seen since Trump’s first term.
US stocks with elevated overseas exposure have faced downward pressure.
The second concern with corporate America, according to the analysts, is a strong dollar:
Companies grappled with a stronger US dollar during 4Q, as the trade-weighted US dollar strengthened by 6% during the quarter. The combination of strong US economic growth, solid US asset returns, and the threat of tariffs have supported dollar strength in the later part of 2024 and the beginning of this year (Exhibit 3).
A stronger dollar weighs on the non-US sales of companies, acting as a headwind to overall sales and earnings estimates. Alongside recent US dollar strength, the share of S&P 500 companies mentioning FX has risen across 4Q earnings calls (Exhibit 4). Recent management commentary noted the negative impacts of the stronger US dollar on sales results (TEL, PCAR, AZO) and some companies expect FX headwinds to persist (AAPL, DECK, TDY). Our FX strategists forecast the trade-weighted dollar will appreciate by 3% over the next twelve months. We recently highlighted potential solutions for corporates to mitigate the headwinds from a stronger USD including FX hedging and reporting results in constant currency.
The last theme the analysts found that continued to dominate earnings calls was enthusiasm over AI:
Managements continued to express enthusiasm over AI on 4Q earnings calls, with some noting that AI has led to improvements in efficiency internally and for their customer base (C, T, SLB, UNH). The share of companies mentioning AI during this quarter’s earnings calls reached a new high at 50%. After last Monday’s news about DeepSeek, commentary from mega-cap tech companies (GOOGL, MSFT, META) highlighted the potential benefits of recent developments in AI.
The AI trade has continued to broaden, particularly to companies with the potential to monetize AI and boost their earnings from widespread AI adoption. Since the start of Q4 earnings season, our basket of Phase 2 AI infrastructure stocks (GSCBAIP2) have outperformed the equal-weight S&P 500 by 2 pp, whereas stocks with AI enabled revenues (GSCBAIP3) have outperformed the equal-weight S&P 500 by 6 pp. Phase 3 companies (e.g. ACN, ADBE, META) are starting to capitalize off their AI investments, deploying tools internally and into their products, allowing employees and customers to benefit.
To recap, the three big themes that the analyst found during this earnings season were tariffs, strong dollar, and AI.
We suspect these themes will dominate well into the second half of the year.
Tyler Durden
Fri, 02/07/2025 – 10:45
