Earnings snapshot: Margins matter, AI leaders in focus as Q3 wraps
With 99% of the S&P 500 reported, third-quarter EPS growth is tracking near 13% - the fourth straight quarter of double-digit gains and a step up from Q2. That's a clean beat versus the ~8% EPS growth analysts expected on Sept. 30. The tape now hinges on a handful of key names: Oracle, Broadcom, and Adobe, plus a slate of specialty retailers.
Housing: Incentives bite margins at Toll Brothers
Toll Brothers missed on EPS while topping revenue, as promotions and buyer hesitancy compressed home sale margins. Gross margin printed 26% vs. ~26.5% expected. Management cited soft demand and a choppy market, even as mortgage rates eased. Luxury positioning helps, but the message is clear: incentives are the cost of moving product.
- Watch: order trends, backlog quality, and the pace of incentive normalization into 2026.
- Positioning: margin sensitivity remains elevated across homebuilders if price cuts persist.
AI signal: Mentions hit a new record
Mentions of "AI" on S&P 500 earnings calls hit a 10-year high in Q3. Companies that flagged AI saw modestly better share performance in recent months and a wider gap over the past year. Oracle's update on cloud backlog and AI demand will likely steer near-term sentiment in the group.
- Reference: broader data context from FactSet.
Retail: Value channels win, category leaders execute, grocery slows
Victoria's Secret ripped on raised sales and EPS guidance, with Q3 revenue above expectations and a narrower loss. Dollar General beat, pointing to balanced growth and stronger profitability. Five Below delivered double-digit same-store growth, a revenue beat, and a full-year raise.
Ulta outperformed on comps, margins, and EPS, then nudged guidance higher into holiday - cautious tone, but confident execution. Kroger slipped as revenue was flat and comps were steady but unspectacular; competitive pressure from large-format and e-commerce players remains a headwind. Hormel posted higher sales but a quarterly loss as inflation kept profit under pressure, even with adjusted EPS ahead of estimates.
- Watch: traffic vs. ticket mix, promo cadence into holiday, and inventory discipline.
- Read-through: value-seeking behavior is sticky; premium retail needs product catalysts and clean inventory to keep share.
Enterprise tech: Guidance spreads widen, AI monetization gets more real
HPE's near-term guide came in light, even as networking surged triple digits year over year. Servers declined and hybrid cloud slipped, while EPS topped and revenue grew double digits but missed consensus. The mix shift matters: networking strength vs. softness in compute and cloud.
Snowflake posted a slightly narrower loss but missed revenue by a hair and guided below consensus. The deeper Anthropic tie-up - a multiyear, ~$200 million agreement bringing Claude models and AI agents into Snowflake - is strategically sound, but investors want clearer visibility on consumption reacceleration.
Salesforce beat on EPS and lifted its FY26 revenue outlook. Management highlighted strong demand for its AI agent platform and data stack with ARR scaling quickly. The takeaway: AI features tied to core workflows are moving from interest to paid adoption.
- Key checks: consumption trends (Snowflake), backlog and AI-driven bookings (Oracle), networking vs. compute mix (HPE), and AI ARR momentum (Salesforce).
- Context: consensus inputs from S&P Global Market Intelligence.
What to watch next
- Oracle: cloud backlog growth, AI workload wins, and CapEx/GPUs supply commentary.
- Broadcom: AI semiconductor exposure vs. core enterprise demand; any updates on custom accelerators.
- Adobe: GenAI product uptake, pricing, and net new ARR color.
- Retail set (GameStop, AutoZone, Chewy, Costco): category elasticity, services revenue, and inventory health.
Portfolio notes
- Housing: assume ongoing incentive drag; be selective on builders with pricing power and land discipline.
- Value retail: traffic tailwinds persist; margin control and shrink remain key swing factors.
- Enterprise AI: reward real ARR tied to workflow automation and data platforms; discount hype without backlog.
- Guidance risk: Q4 and early-2026 outlooks matter more than Q3 beats - watch for quality of raises and visibility.
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