Martin Gamble on US Markets: Disney dazzles, McDonalds' cost hit

US markets continued to make new highs this week despite the fragile Middle East ceasefire driven by technology stocks and positive earnings upgrades.

With the earnings season in full swing the data shows that roughly four fifths of companies have beaten profit estimates and the average positive surprise has been 11%.

The S&P 500 is on track for its highest year-on-year growth rate since 2021 driven by big technology companies. Quarterly earnings could become a thing of the past if the proposal by the US regulator to allow companies to move to semi-annual reporting is passed.

Semiconductor stocks continued to make new highs driven by intense demand for AI-related spending with first quarter global semiconductor sales increasing by 25% compared to 2025.

New Disney CEO makes strong debut

The debut quarter for Disney’s new CEO Josh D’Amaro got off to a flying start after the entertainment giant revealed better than expected earnings and reiterated an acceleration in second half growth.

The shares responded positively rising 7.5%, taking gains to around 17% over the last month.

In a letter to shareholders D’Amaro, who succeeded Bob Iger in mid-March, said he expected earnings per share growth for fiscal 2026, ending in October to be around 12% followed by double-digit growth in 2027.

Higher subscription, advertising revenues and box office gains helped Disney’s entertainment division to record its strongest quarterly operating profit growth since October 2024.

The experiences division which includes parks and cruises reported a 5% increase in operating profit as guests spent more and ships saw higher volumes. The sports division posted a 5% decline in operating profit on higher sports rights and production costs.

The company is targeting at least $8 billion of share buybacks for fiscal 2026.

McDonalds hit by higher energy costs

Fast-food giant McDonalds reported slightly better than expected global same-store sales growth of 3.8% in the first three months of the year but missed analysts’ forecasts for growth in its home market.

CEO Chris Kempczinski flagged a softer start to the current quarter as high fuel prices impacted lower income consumers.

“Inflation at the pump is going to disproportionately impact low-income consumers, and we expect the pressure there to continue,” added Kempczinski.

The slowdown reflects a wider industry trend with several US food chains like Wingstop and Domino’s reporting weaker quarterly sales growth as consumer budgets are squeezed.

McDonald’s expanded its McValue Meal deal with new $3 and $4 tiers in April aimed at capturing a greater share of cost-conscious consumers.

After initially moving higher the shares fell back and remain around 7% lower for the year to date compared with a 7% rise in the S&P 500 index.

Advanced Micro Devices boosts outlook

Chipmaker AMD soared 19% to a new all-time high this week after first quarter earnings topped consensus forecasts and the company raised its outlook for AI-related CPU (Central processing unit) server demand.

The gain boosted demand for other chip stocks with Intel gaining 5%, Arm Holdings up 13% and Qualcomm gaining 3%. AMD shares have been on a tear, more than quadrupling over the last year and doubling year-to-date.

AMD echoed recent comments by rivals that a shift towards real world AI applications is opening new opportunities for server CPUs. Inference involves complex logic and data processing creates more demand for CPUs.

Consequently, AMD now expects the server CPU market to grow by more than 35% annually through 2030, up from 18% a year previously.

CEO Lisa Su said: “Looking ahead, we expect server growth to accelerate meaningfully as we scale supply to meet demand.”

The company said it expects second quarter revenue of about $11.2 billion, compared with previous consensus expectations of $10.5 billion, according to LSEG data.