How AI Drove the July-Sept Earnings Season

The July-September 2025 earnings season marked another successful quarter for the artificial intelligence (AI) industry. While 81% of companies on the S&P 500 index beat EPS estimates, the Magnificent 7 stocks stood out with an average earnings growth of about 26.6% against the 8.1% average for the rest. Notably, the rest of the index features a large proportion of companies with accelerated AI applications. Dive into how you can build a trading strategy to take advantage of the AI frenzy.

AI Drives the Q2 2025 Earnings

As AI becomes a strategic imperative for businesses across sectors, early movers are evidently at an advantage.

AI Businesses Report Strong Earnings

The manufacturing, consumer goods, and hospitality sectors experienced headwinds from tariff-related threats to supply chain stability. However, AI-focused businesses posted profitability in general. Tech leaders, such as Alphabet, Meta, Microsoft and Palantir, also issued upbeat guidance.

Positive guidance from these companies indicates that demand momentum for their goods (or services) is strong, which drives bullish market momentum. 

AI Hardware Companies Register Massive Growth

While Nvidia’s Q2 2025 revenue was below expectations, the company achieved a market cap of $4.4 trillion and remains the market bellwether. Micron’s data centre revenue tripled, and the company reached Zacks Rank #1.

Chips are the foundation of AI advancement. High chip demand translates into greater innovation and improved model training. These indicate potentially more applications and solutions, driving greater demand and, hence, higher potential growth for the AI industry.

Tech Giants Leaning into AI for Growth

The earnings of Alibaba and HP were boosted by their AI-powered advances in cloud infrastructure and PCs, respectively.

The S&P 500 registered over 20% gains through 2023 and 2024, riding on the back of AI stocks. The technology is expected to drive the benchmark index even higher going forward. Evercore ISI strategist Julian Emanuel expects the S&P 500 to reach 6,250 by the end of 2025 and 7,750 by end-2026, continuing its double-digit annual gains in both years.

Against a backdrop of long-term bullish forecasts, building a trading strategy to take advantage of the AI euphoria can help traders explore more opportunities in the market.

How to Trade the AI Frenzy

There are several ways to take advantage of AI-driven bullish market moves. Tweak your existing trading strategy or build a new one with the tips below.

Understand the Scope of AI Impact

From semiconductor makers to LLM trainers, and from cloud infrastructure providers to data analysts, AI is driving the growth of almost all industries where technology is used. New developments in any of these through research, lower costs of AI chips and data centres, or advances in cloud-based data management solutions, all impact AI enthusiasm. These may trigger a surge in a stock and even sector-wide rallies. If fundamental analysis is your strength, pick out AI ETFs and stocks you predict will outperform the market. To get broader exposure, consider index trading.

That’s not all. AI is transforming decision-making through software solutions across industries, such as vertical farming and clean energy initiatives. These may shift market sentiment for agriculture and other sectors, driving growth. The key to trading such sectors is to look beyond market cap and P/E ratios. Evaluate the sector’s long-term potential, competitive landscape, and practical applications of AI technology in driving growth.

Build a Watchlist

Staying updated on key developments in the AI industry and industries that use the technology as a resource can help you discover opportunities. There are more than just earnings reports to look out for. For instance, research releases, major capital investments, strategic mergers and collaborations, and product launches are also important. Plus, regulatory updates can significantly impact the AI industry and its applications. To prevent missing out on these, turn on market update notifications on your trading platform.

Choose Technical Indicators

Technical indicators are an integral part of any trading strategy as they help you identify entry and exit points. For instance, signals such as the MACD golden cross, a Bollinger Bands bullish breakout, and bullish flag and triple bottom patterns help discover suitable entry points. To spot exits, you can use reversal signals and overbought indicators, such as RSI, to speculate on potential pullbacks.

Manage Risk

A frequently sighted risk with AI-driven S&P 500 growth is that of consolidation. About 40% of the index’s weight is concentrated within the top 10 companies. This top-heavy structure raises concerns reminiscent of the dot-com bubble. Trade tensions also create potential risks as chip imports become costlier for LLM developers. Silicon and rare earths, such as gallium, germanium and palladium, play a critical role in AI-chip manufacturing. Their availability or shortage may also impact AI manufacturers.

These necessitate a robust risk management plan. While index trading is one way to broaden your exposure. Diversification into uncorrelated assets, such as gold, is another. You can also explore derivative instruments, such as contracts for difference (CFDs). These help you hedge each position individually, mitigating risk exposure.

Once you have built a trading strategy, practise on a demo account to backtest it so you can capture the AI frenzy.   

To Sum Up

• AI drove exceptional earnings growth for big tech companies during Q2 2025.
• AI is driving growth across sectors, including technology, banking, agriculture, etc. 
• The S&P 500 faces a risk of market concentration.
• Traders can build a watchlist to stay updated about new developments in and due to AI.
• Technical indicators like MACD and RSI can help identify entry and exit points for trading.
• To manage risk, consider diversification into uncorrelated assets and hedging your positions.

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