This earnings season has flipped a familiar script. Usually, the biggest stock swings after quarterly results come from smaller companies, whose shares can jump around more because fewer investors trade them. But according to options data from ORATS, cited by Reuters, it's the mega-cap "hyperscalers" tied to artificial intelligence that are now making the largest moves.
ORATS' Matt Amberson notes that small-cap reactions have been relatively muted this time around. Instead, the market's main volatility profits are showing up in the shares of Amazon, Microsoft, Alphabet, and Meta — the tech giants that dominate cloud computing and AI infrastructure.
Why hyperscalers are moving more
Hyperscalers are the largest cloud service providers, operating massive data centers that power everything from streaming to enterprise software. Their earnings are closely watched because they signal demand for AI computing power, which has become a key driver of the broader market.
When these companies report, investors are not just looking at last quarter's numbers. They're trying to gauge how much companies are willing to spend on AI infrastructure, and whether that spending is translating into revenue growth. That makes their earnings reports high-stakes events, and the market's reaction can be outsized.
This season, the moves have been bigger than usual. For example, a strong report from one of these giants can lift the entire tech sector, while a disappointing one can drag it down. The JPMorgan's raised S&P 500 target reflects the growing belief that AI earnings will continue to drive market gains.
What this means for investors
For everyday investors, the key takeaway is that earnings season is no longer just about small-cap surprises. The biggest moves — and the biggest risks — are now coming from the largest companies in the market.
If you own index funds or ETFs that track the S&P 500, you're heavily exposed to these hyperscalers. Their post-earnings swings can move the entire index, which means your portfolio can feel the impact even if you don't own individual tech stocks.
It's also worth noting that options data like ORATS' can give a sense of how much volatility traders expect around earnings. When implied volatility is high, it suggests that big moves are anticipated. This season, the data shows that traders are pricing in larger swings for these mega-caps.
For those who prefer to avoid the roller coaster, it might be wise to check how much of your portfolio is tied to these names. Diversification across sectors can help cushion the blow if one of these giants disappoints.
Small caps take a back seat
Typically, small-cap stocks see the biggest post-earnings moves because they have less analyst coverage and thinner trading volumes. But this season, that pattern has reversed. Small-cap reactions have been relatively muted, according to ORATS.
That could be because investors are focusing their attention on the AI trade, leaving smaller companies with less market-moving news. Or it could be that small-cap earnings have been less surprising this time around.
Either way, the shift is notable. For investors who look to small caps for big gains during earnings season, this quarter may have been a disappointment. But it also means that the risks of sharp drops in small-cap stocks after earnings may be lower than usual.
Looking ahead
As earnings season winds down, the focus will likely remain on the hyperscalers. Their guidance for the coming quarters will be crucial, especially as concerns about AI spending sustainability persist.
Investors will also be watching how other sectors respond. For instance, energy stocks have been drifting lower on weak revenue from some companies, while chip stocks have been volatile as AI demand continues to shape the market.
The bottom line: this earnings season is a reminder that in today's market, the biggest players can move the most. Understanding that dynamic can help you make more informed decisions about your investments.
