The ongoing fourth-quarter corporate earnings season has gotten a mixed reception. By Friday, 75% of the S&P 500 companies that had reported delivered a positive earnings-per-share surprise, which is below the five-year average of 78%, according to FactSet.

This may partly explain — along with geopolitical angst — why the S&P 500 has been struggling to burst above the 7,000 level.

And now come Big Tech’s results. Microsoft, Meta and Tesla on Wednesday, followed by Apple on Thursday, account for 16.5% of the S&P 500’s market capitalization. More tech stars follow in coming weeks, culminating with Nvidia on Feb. 25.

The good news for bulls is that the market is decidedly cautious headed into Big Tech earnings, according to Julian Emanuel, strategist at Evercore ISI.

“Tech enters [fourth quarter of 2025] earnings season with among the most downbeat sentiment of the AI Bull market,” Emanuel said in a note published Sunday.

And this means the set-up is much more favorable, he reckons. Emanuel recalls that, approaching the previous earnings season, investors were in a much more upbeat mood, which, for example, led to Oracle’s shares diving nearly 11% following its results.

So, just how wary is the market? Well, Emanuel notes that the information-technology sector is trading at its lowest next-12-month valuation premium to the S&P 500 in the postpandemic environment.

Source: Evercore ISI

“Drilling down even further, [the Magnificent Seven’s price-to-earnings ratio] is in-line with its postpandemic average, while the ‘other 493’ stocks in the S&P 500 trade near their all-time high valuations,” he says.

The main source of this tech-sector angst is software, where investors are concerned that AI may substitute many services, according to Emanuel. Software is currently seeing its worst underperformance in many years. It “feels so bad that a favorable risk/reward zone has emerged,” he adds.

Source: Evercore ISI

Emanuel accepts there are many reasons for caution in the AI theme, including extended valuations and disappointing rates of AI adoption. In addition, leverage and circular financing have increased concerns that the AI capex build-out contains systemic risks.

But he says: “Similar to the progression of the late 1990s ‘Internet Revolution’ bull market that ended in the 2000-02 bust, there might come a day where these concerns are salient, but not only is that day not now, in our view, price has over discounted these concerns.”

Consequently, Evercore is a buyer of the hyperscalers, of which Amazon.com and Alphabet report earnings next week, and of those tech stocks with notably high short interest relative to their two-year range. These include Qualcomm, Skyworks Solutions and Fortinet.

For Microsoft, Meta and Apple, Emanuel suggests using options and undertaking a strategy called a bullish risk reversal. This entails selling a downside put option and buying an upside call option. A put/call option gives the buyer the right to sell/buy the stock at a particular price within a certain time. This risk-reversal strategy is used when an investor is bullish and wants to reduce the cost of a long position.

Evercore gives the specifics of each trade: For Microsoft, buy the April $515 call and sell the $435 put. For Meta, buy the April $765 call and sell the $590 put, and for Apple buy the April $265 call and sell the $235 put.