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Investing.com -- Wells Fargo (NYSE:WFC) sees investors leaning back into high-beta, small and mid-cap names ahead of second-quarter results, and is recommending Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL) and Expedia (NASDAQ:EXPE) as the “best tactical longs” into earnings.
The bank expects improved commentary from Amazon Web Services (AWS) to help counter investor concerns following weaker third-party data in April and May.
“[We] expect alleviation of supply constraints late in Q2 to enable acceleration commentary to rebut market skepticism on AWS 2H growth,” analysts led by Ken Gawrelski said in a note.
Alphabet, meanwhile, could benefit from foreign exchange (FX) tailwinds and a recovery in paid search volumes, while also seeing a resolution in its search remedy case that may support its relative performance.
For Expedia, analysts see the travel technology firm as a standout thanks to its accelerating web traffic and favorable travel trends, supported by recent upbeat airline earnings commentary.
Wells Fargo also flagged that while digital advertising stocks remain crowded, there is more opportunity in e-commerce, rideshare and online travel agency names.
Sentiment toward Uber (NYSE:UBER) and Lyft (NASDAQ:LYFT) has cooled on autonomy-related risks and margin concerns, but the analysts expect Uber to guide third-quarter bookings above consensus.
Furthermore, the report noted that short-term and long-term investors are watching the relative 20%+ underperformance of Alphabet against Meta (NASDAQ:META) so far this year, with some betting on the year-to-date (YTD) gap closing.
Overall, the analysts think the overall tone ahead of Q2 results is more risk-on versus the prior quarter, and expect elevated volatility as investors adjust their positioning.
On capital spending, the team sees an upward bias in mega-cap tech CapEx for 2026 and beyond but does not expect companies to issue explicit 2026 guidance during the upcoming earnings calls.
Second-quarter earnings season is off to a strong start, with 61% of the 59 S&P 500 companies that have reported so far beating estimates by more than one standard deviation—well above the historical average of 48%.