Apple and Amazon will report their Q2 earnings after the market closes today. Following positive results from Microsoft and Meta, Wall Street remains hopeful despite potential market shifts at the end of July. Apple has faced tough times in 2025, mainly due to tariffs set by Trump, affecting iPhone sales. In June, sales may drop by 18% compared to last year. Apple expects costs related to these tariffs to reach up to $900 million for Q2 2025. The company is now focusing on AI innovation and its current products to increase revenue.

Amazon Earnings Outlook

Amazon’s outlook appears brighter, thanks to strong retail and cloud service performance, although its AI development is trailing competitors. AWS and advertising are crucial profit sources, but Microsoft’s and Google’s advancements in cloud services create tough competition. Amazon plans to invest heavily in AI, spending about $25 billion in Q2 alone, totaling over $100 billion for the year. Changes in tariffs, which affect imported goods worth less than $800, might help Amazon’s e-commerce business. Overall, experts expect a disappointing report from Apple, while Amazon may deliver better news. The US labor market report on Friday could further impact market trends. Since it’s July 31, 2025, we can expect significant market volatility soon. Traders should consider strategies that take advantage of the typical high implied volatility during earnings announcements. While recent positive reactions to Microsoft and Meta give a hopeful outlook, the situations for each company differ considerably. For Apple, the chance of a disappointing report suggests the bad news may already be reflected in its stock price, which has fallen over 16% this year. Buying put options now could be risky; even a slightly better report could spark a rally. A more balanced approach, like selling an iron condor, might be more effective to profit from a predicted drop in volatility after earnings, assuming the stock doesn’t move drastically. Recent supply chain data from Asia indicates a slowdown, supporting expectations of an 18% year-over-year drop in June iPhone shipments. The market has accounted for this, along with the estimated $900 million loss from tariffs. The key focus will be the company’s future guidance and strategies for managing costs and innovating beyond its current product range.

Amazon Sentiment and Strategy

Sentiment around Amazon is more optimistic, making the purchase of call options seem reasonable. However, this carries risk as simply beating earnings expectations may not suffice. Given high expectations, strong results and guidance will be essential, especially for its AWS and advertising sectors. Signs of weakness here could disappoint investors and hurt stock prices. While AWS remains a leader, its market share has dipped slightly, falling to 31% in Q1 2025 from 33% the previous year, as Microsoft’s Azure and Google Cloud increase their presence. We will keep a close watch on AWS’s growth rate to ensure it can maintain its position. Growth in advertising revenue is also key to compensating for any cloud weakness. Amazon’s significant investment in AI needs to produce results, as we haven’t seen this level of investment since the late 1990s dot-com boom. The expected $25 billion in Q2 capex must lead to new AI products or notable efficiency improvements. Without a compelling AI narrative, investors may lose patience compared to Amazon’s peers. A pair trade could effectively navigate this divide by going long on Amazon call options while buying Apple put options. This strategy allows investors to focus on the performance of each company independently from wider market moves, capitalizing on the narrative of Amazon’s strength versus Apple’s current difficulties. Lastly, don’t forget about the US labor market report coming this Friday, August 1st. Analysts predict a slight slowdown, expecting around 190,000 new jobs in July, down from 225,000 in June. Surprises in either direction could overshadow earnings news, so it’s wise to hold some inexpensive, short-dated puts on the QQQ or SPY index as protection through the week. Create your live VT Markets account and start trading now.

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