Risk appetite continues to dwindle this week and European shares have opened lower, although the FTSE 100 is eking out a gain. There is too much uncertainty which is eroding the foundations of a broad-based stock market rally as we move through February. The two big themes driving markets right now are earnings reports and the threat of tariffs, which are tricky for investors to navigate.

Google kitchen sinks AI investment

As we mentioned on Tuesday, the majority of companies on the S&P 500 that have reported earnings, have beaten estimates, and the market is rewarding stocks who do beat earnings estimates by a higher margin than average. This also means that the opposite is true. Companies are getting punished if their earnings disappoint. This is why Alphabet is expected to open significantly lower on Wednesday, and chip maker AMD could follow suit. Alphabet reported Q4 revenues of $81.6bn, which was lower than the $82.8bn expected. The company boosted its capex spend by more than expected, capex will be $75bn in 2025, vs expectations of $57.9bn. This is a significant increase, and it shows that Alphabet is throwing the kitchen sink at its AI plans.

This is a problem for investors. The clearest way to see if Google is monetizing AI is through its cloud unit, and sales in this unit also missed expectations last quarter. This is a double whammy of bad news for investors who are already scrutinizing AI in 2025 after the arrival of DeepSeek, which offers a free large language model, while Google’s costs money. Google’s advertising business and revenue from YouTube were both stronger than expected, however, its AI ambitions are driving the market reaction, and in the after market on Tuesday, the stock was lower by 9%.

Is AMD a warning signal for Nvidia?

While Google builds out AI models, AMD is providing the hardware. It also reported results last night, and like Google it also missed the mark. Even though Q4 revenue topped estimates, data centre revenue was weaker than expected at $3.86bn, vs. $4.09bn expected. The biggest issue was AMD’s forecasts. It said that its data centre business will grow by strong double digits this year, with most of that sales growth coming in the second half of the year. Considering investors are used to chip makers surpassing expectations every quarter, this was deemed a disappointment, and AMD’s shares slid 8% in the aftermarket, and are poised to open lower on Wednesday.

This increases the pressure on Nvidia, which reports results later this month. Nvidia will have to pull off another monster earnings report for last quarter, to wrest momentum back to its side, after a 12% decline so far this year.

EU threatens to hit the US where it hurts

Elsewhere, Europe is preempting US tariffs and threatening to use its ‘anti coercion instrument’ against US tech firms if Trump slaps tariffs on European exports. The EU is trying to hit the US where it hurts when it comes to retaliatory measures. It will be interesting to see how the US big tech firms react to this news later today. Although earnings data is more important for now, the EU is still an important market for big tech in the US, and the prospect of retaliatory tariffs hitting their sector, could weigh on tech share prices later today. However, we would note that tariff threats have deescalated this week, and are less of an immediate threat, hence the mild declines in European equities so far today.

Obesity drugs still big business for pharma

Pharma is also in focus today. Ozempic maker Novo Nordisk reported better than expected sales for Q4, and it also upgraded its guidance for 2025. Its anti-obesity drugs saw sales rise more than expected, and it gave a very strong forecast for their most famous drugs, with revenue expected to grow by 16% - 24% this year. This comes even though Novo expects to see periodic supply constraints for Ozempic. This earnings beat is likely to boost its share price this morning, and there is room for this share to stage a decent recovery, after declining by 28% in the past 6 months. The Ozempic craze remains in place, and Nordisk is reaping the benefits.

GSK tops the FTSE 100

GSK is powering ahead and is one of the best performers on the FTSE 100 this morning. Its earnings reports ticked all of the boxes for investors, it is planning a £2bn buyback, and it raised its long-term growth forecast for sales to over £40bn, as it expects future oncology drugs to drive revenue. Q4 EPS was also stronger than expected. Vaccines remain a concern, especially since RFJ Jnr was voted into the position as health secretary in the US. The US has already restricted the use of GSK’s RSV vaccine, and GSK says that it expects a low single digit decline in vaccine revenue this year. That is not stopping the stock this morning, as it has other positive sources of revenue, for example, from oncology drugs, to neutralize the impact of slowing vaccine demand.

A market for individual stocks

For now, this is a market that is backing individual stocks, and markets are not moving in unison. Hopes for a broad-based equity market rally than extends beyond tech is on hold for now, on the back of Trump’s tariff risks. The equal weighted S&P 500 had outperformed the market cap weighted S&P 500 in January; however, it is now moving back in line with the market cap index, which suggests a lack of enthusiasm for value stocks as a whole. Investors are willing to put their money to work in the financial markets, but it is directed at individual firms who are shining this earnings season. This is a theme to watch.

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