Semis Take the Lead While Software Falls Apart

Yesterday was the biggest day of earnings season so far, with 37 S&P 500 companies reporting in a single session.

The market had a massive amount of new information to digest, and what emerged on the other side painted a very clear picture of where capital is flowing, where expectations are being reset, and which trends are strengthening versus which are continuing to break down.

The dispersion in earnings reactions continues to widen in a meaningful way, and that’s exactly what you would expect to see in a healthy bull market when correlations are lower.

First, let's dive into the top beats from yesterday's session.

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United Rentals $URI delivered the strongest reaction of the day, rallying more than 20% despite reporting mixed results. 

And we saw a very similar dynamic play out in the railroads.

Union Pacific $UNP and CSX $CSX both reported mixed earnings, yet both stocks were rewarded with strong upside reactions. This makes it clear that expectations were too low ahead of the print. 

But the biggest standout of the day was Texas Instruments $TXN.

Following a blockbuster earnings report, Texas Instruments surged 19.4%, marking its best earnings reaction since the year 2000. 

Additionally, this reaction put the finishing touches on a textbook accumulation pattern. 

The gap higher was decisive, and the follow-through to new all-time highs confirms that buyers are in complete control of the primary trend.

When you look beneath the surface, the fundamentals fully support the price action.

Texas Instruments reported $4.8 billion in revenue for the quarter, representing a 19% increase year-over-year, with growth accelerating across both its analog and embedded processing segments. 

What stands out even more is the breadth of that growth. Industrial demand increased more than 30% year-over-year, while data center demand surged nearly 90%, highlighting powerful secular tailwinds that are now translating into tangible financial results.

Profitability also expanded meaningfully, with operating profit rising 37% compared to the same period last year, reinforcing the idea that this is not just a revenue story but a margin expansion story as well.

Putting it all together, we expect TXN to outperform the S&P 500 for the foreseeable future.

On the other end of the spectrum, yesterday's bottom beats told a completely different story.

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While the leaders were being rewarded, even on mixed results, the laggards struggled to get any traction at all. And what stood out most was how many stocks failed to rally on objectively good news.

We saw several clean double beats from names like Thermo Fisher $TMO, Freeport-McMoRan $FCX, IBM $IBM, Las Vegas Sands $LVS, Blackstone $BX, and American Express $AXP.

And despite the better-than-expected news, all of them traded lower. When stocks stop going up on good news, it usually means expectations were already elevated, and buyers are no longer willing to chase.

Even stocks like Tesla $TSLA and Lam Research $LRCX, which delivered solid reports, failed to catch a bid. 

And then, at the very bottom of the list, was ServiceNow $NOW.

Following a mixed earnings report, ServiceNow cratered nearly 18%, marking the largest negative reaction in the company’s history. This is particularly significant given the company’s prior leadership status within the software space.

What makes this move even more important is the context in which it occurred.

ServiceNow has already been in a prolonged downtrend, with the stock down more than 60% from its peak in early 2025. 

In the weeks leading up to this earnings report, there were signs that the stock might be attempting to stabilize, as it began to reclaim a key level of former support. That potential reversal failed decisively, and the post-earnings gap lower confirms that sellers remain firmly in control.

From a fundamental perspective, the story is not as weak as the price action might suggest at first glance.

The company continues to grow at an impressive rate, with subscription revenue increasing 19% and remaining performance obligations rising more than 23% year-over-year. 

Margins remain strong, free cash flow generation is robust, and management continues to position the company as a central player in enterprise AI, describing its platform as the “AI Control Tower” within a massive and expanding addressable market.

And yet, none of that mattered.

That is the key takeaway.

When a company delivers solid growth, beats its own guidance, and still gets punished with its worst earnings reaction ever, it is not a reflection of the past. It is a reflection of expectations for the future. 

The market is forward-looking, and in this case, it is clearly signaling that expectations were too high and that the current trajectory is insufficient to justify prior valuations.

This is how downtrends persist.

They are not driven solely by weak fundamentals. They are driven by a mismatch between expectations and reality, and once that gap widens, the price adjusts accordingly.

Until proven otherwise, we expect NOW to be a major laggard relative to the S&P 500 for the foreseeable future.

In the Premium Beat Report, we are not just observing these dynamics.

We're positioning ourselves in the strongest technical and fundamental market trends.

Happy Friday,

-The Beat Team