AI hyperscalers upend usual earnings stock swing pattern

NEW YORK, Aug 11 (Reuters) - ‌Larger-than-usual post-earnings stock ​swings ​by AI and hyperscaler companies this earnings season have upended a historical pattern in which smaller companies' results typically drive the ‌larger stock moves, data from options analytics service ORATS showed.

The ⁠first few weeks of earnings seasons are typically dominated by major market leaders, including financial ‌giants like JPMorgan Chase and ‌Wells Fargo, early-reporting Dow Jones blue chips, and mega-cap tech powerhouses like Apple, Microsoft, Alphabet, and Meta. Smaller companies in the index take ​center stage in later weeks.

Thinner liquidity, smaller floats, less institutional ownership and sparser analyst coverage relative to larger companies combine to make small-cap ⁠earnings reactions typically larger in magnitude than those of mega-caps.

Not so this time.

"The smaller companies in recent ​weeks have had more muted earnings moves – a contrast to the early weeks when AI and hyperscalers' reports helped drive ​larger-than-usual moves," ORATS founder Matt Amberson said.

Some ‌of the largest hyperscalers, including Amazon, Microsoft, Google and Meta, have produced big post-earnings stock swings, surpassing their respective ⁠average moves in past quarters, as investors aggressively cheered or sold off shares depending on whether AI capital expenditures appeared to be paying off.

For companies reporting in ⁠the first week of the second-quarter earnings season, which kicked off in mid-July, buying options ​straddles — a strategy combining the purchase of a put and a call — fetched the largest average gains, with profits shrinking in weeks two through four, ORATS data showed.

Week ‌one gains averaged 23%, compared with an average loss of 2% for the strategy in the first week of ‌earnings over the last 12 quarters, the ORATS analysis showed. In contrast, for ⁠the fourth week of results, ‌the strategy produced an ​average loss of 6% compared with the historical average of a loss of 5%.

(Reporting by Saqib Iqbal Ahmed; Editing by ‌Mark Porter)

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