A 47% Profit Quarter Meets Morgan Stanley's $40 Bristol Myers Target

Aggregate S&P 500 second-quarter profit growth is tracking near-recovery-era highs, but the sharpest disputes are about the durability of that growth, not its size.

The aggregate number is extraordinary — and it explains the dip-buying

Aggregate annual S&P 500 profit growth is tracking 47% in the second quarter according to LSEG data, almost twice what was expected a month ago, as Big Tech's AI push combines with a bumper quarter for the big banks and Big Oil. That level has only been exceeded in recent decades during the bouncebacks from the banking crash and pandemic recessions — with the key difference that there has been no recession this time. Deutsche Bank has raised its S&P 500 earnings estimates on the back of the solid Q2 beats. This is the cleanest explanation for why dip-buying and sectoral rotation, rather than cashing out, have been the preferred response to recent volatility.

Bristol Myers: a beat-and-raise the sell side refuses to pay for

Bristol Myers posted second-quarter adjusted earnings of $2.04 a share on revenue of $12.97 billion against estimates of $1.60 and about $11.86 billion, raised full-year revenue guidance to $49.0–$50.0 billion and adjusted EPS to $6.75–$7.00, and lifted operating expense guidance to about $16.5 billion to fund pipeline work and launches. The tension is in the composition: worldwide Eliquis sales are now expected to grow 20% to 25% this year versus a prior 10% to 15%, and that single upgrade drove roughly half of the total guidance increase — from a legacy drug that loses US patent protection soon, while the newer products meant to carry the company contributed less. Morgan Stanley's Terence Flynn reiterated Underweight with a $40 target against a $65.31 July 31 close, built by applying a multiple of 7 to an estimated $5.72 of earnings over late 2027 through mid-2028. That 7 times sits far below Bristol Myers' 10-year average of about 14 times and the industry's roughly 15 times — a valuation statement about the patent cliff, not the quarter.

And then the deal talk arrived

Reported tie-up talks between AstraZeneca and Bristol Myers moved both stocks on Monday — AstraZeneca slumping, Bristol Myers jumping — with analysts openly puzzled about the strategic logic of the two pharmaceutical giants combining. The directional split is itself informative: the market is pricing the target's cliff problem as someone else's to solve. Taken with Morgan Stanley's math above, the interpretation is that scale is being floated as the answer to a 2027–2028 earnings hole that a strong 2026 does not fix.

AMD is the week's real test of the AI capex trade

AMD reports after the bell Tuesday with consensus at $1.62 EPS on $11.3 billion of revenue, against $0.48 and $7.6 billion a year ago, and data center revenue expected to more than double to $6.5 billion from $3.2 billion. The stock is up 194% over 12 months, but the Philadelphia Semiconductor index — up more than 100% over the last year — has dropped 20% since roughly mid-June, so the setup is a strong print into weak momentum. The bull case is Helios, AMD's new rackscale platform with 72 MI455X GPUs, which Lisa Su claims delivers 15% better compute than Vera Rubin, 50% more high-bandwidth memory capacity and 30% more tokens per dollar than Nvidia's servers — against a competitor holding as much as 90% share. The offsets are visible in the segment mix: gaming is set to fall 30% to $781 million, and a PC downturn driven by higher memory prices threatens the client business, expected at $3 billion.

Elsewhere: cash generation under a shrinking growth story

IBM trades around $224, roughly 33% below its $332.46 52-week high, after second-quarter revenue rose just 1% to $17.2 billion and management trimmed full-year constant-currency growth guidance to 4–5% from more than 5% — even as software rose 5% and Red Hat 11%, decelerating from the segment's 11% first-quarter growth. The $6.4 billion annual dividend consumes about 60% of trailing EPS but only about 40% of the roughly $15.7 billion of free cash flow management projects for 2026, though first-half free cash flow of $4.8 billion was flat and the second quarter's $2.5 billion fell about 11%, so all the projected growth must land in the second half. Marriott showed a similar bifurcation by geography: worldwide RevPAR up 3.4%, US and Canada up 5.0%, international down 0.5%, with reported diluted EPS of $2.90 and adjusted EPS of $3.19. At the smaller end the cycle bites harder — BCB Bancorp reported a $14.8 million second-quarter loss and suspended its dividend, while Easterly Government Properties beat and raised.

Sources

• Much 'to do' about yen intervention (yahoo_finance)
• Deutsche Bank raises S&P 500 earnings estimates on the back of the solid Q2 beats (investing_com)
• Morgan Stanley uncovers major Bristol Myers stock signals (yahoo_finance)
• AstraZeneca tie-up talks with Bristol-Myers Squibb are moving stocks. Analysts are puzzled. (marketwatch)
• AMD to report Q2 earnings as chip stocks continue to waver (yahoo_finance)
• IBM Has Fallen 33% From Its High and Yields 3%. Here's What That Dividend Actually Costs the Company. (yahoo_finance)
• Marriott International Reports Second Quarter 2026 Results (pr_newswire)
• BCB Bancorp reports $14.8 million Q2 loss, suspends dividends (investing_com)
• Easterly Government Properties beats Q2 estimates, raises guidance (investing_com)

Not investment advice.