Have US equity expectations run ahead of themselves? Certainly, for some companies, the answer seems to be yes. One of the features of second-quarter earnings season has been the number of companies that have met or ever beaten revenue and earnings expectations yet have cost share prices and investors dearly.

High-growth companies including ARM (ARM:NASDAQ), Airbnb (ABNB:NASDAQ) and Shopify (SHOP:NYSE) are among those that stand out, having comfortably reported recent results ahead of consensus forecasts but whose share prices have fallen, sometimes sharply.

What links these three companies is a weakening of their respective trading environments and the perception among investors that guidance was soft. The market’s reaction to lower sales growth and narrower margins for Shopify’s current quarter to 30 June saw a particularly savage sell-off, the shares more than 19% one day decline in response their largest one-day drop on record.

Airbnb, after issuing similarly tepid growth guidance, lost 7% on the day, while ARM’s modest decline in the end followed pre-market data that suggested a 6% to 7% fall was incoming. But the theme has not only impacted high-growth companies.

‘When valuations and expectations are sky high, any bad news can shake investors’ confidence,’ says Morningstar analyst Michael Field.

Disney (DIS:NYSE) beat earnings estimates for the quarter to 30 March 2024 as Disney+ and Hulu turned a profit for the first time, but revenue was shy of forecasts for the fourth quarter on the spin. Disney also guided for a decline in third quarter subscriptions which it hopes to reverse by copying the Netflix (NFLX:NASDAQ) playbook of preventing password sharing.

Coupled with slowing growth from its money-spinning parks business, as the post-pandemic travel boom fades, this led to a more than 9% share price decline on the day of its own earnings report (7 May) to barely $105, a sell-off from which the stock has yet to stage any recovery.

With the market mood dominated by AI (artificial intelligence) in recent months, it casts Nvidia’s (NVDA:NASDAQ) looming first quarter 2025 earnings (22 May) into sharp relief. Having beaten expectations that have been raised multiple times over the past couple of years, investors are left with the question of how long it can keep shooting the lights out.

Core AI plays like Microsoft (MSFT:NASDAQ) and Alphabet (GOOG:NASDAQ) have continued to perform well and their share prices have responded positively. This may suggest that Nvidia still has scope to positively surprise, and fuel further share price gains. Investors will find out soon. 

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