Alright, let's dive into this earnings season buzz. Seems like everyone's patting themselves on the back about corporate profits, and I get it. 82% of S&P 500 companies beating Wall Street estimates is a headline grabber. Alphabet raking in $102.35 billion in revenue, Meta at $51.24 billion – the numbers are big. But let’s not get lost in the noise.

The real question is, can this momentum be trusted? CNBC Pro is highlighting Robinhood, Palantir, and Ralph Lauren as companies with "momentum on their side," specifically pointing to upward earnings revisions. I'm always wary of these pre-earnings hype pieces. Let's dissect the data.

Robinhood: Riding the Prediction Wave?

Robinhood is the poster child here. Estimated to earn 54 cents a share, with 27 upward revisions. The current estimate is up a staggering 76% from three months ago and 81% from six months ago. Deutsche Bank analysts are apparently pinning this on growth in Robinhood's prediction market, projecting a $155 million revenue contribution next year.

Okay, prediction markets are interesting, but let's put that $155 million into perspective. Robinhood's total revenue in 2024 was $2.175 billion. So, we're talking about prediction markets contributing roughly 7% of total revenue. (To be precise, 7.13%). Is a 7% potential revenue stream enough to justify a 76% jump in EPS estimates? I'm not entirely convinced. What happens if regulatory headwinds or a shift in user interest slows that prediction market growth? The analysts' rosy scenario could quickly turn sour.

Robinhood shares are up 30% and 181% over the past three and six months, respectively. That's some serious froth. Are investors pricing in sustainable growth, or are they just chasing the hype?

Palantir: Government Contracts and Commercial Deals

Next up, Palantir. Twenty upward earnings estimate revisions in three months, pushing the average estimated earnings to 17 cents per share. That's 18% higher than three months ago and 22% up from six months ago. Citigroup analysts are citing a strong relationship with the U.S. government and progress on commercial deals.

Here's where I get a little skeptical. Palantir has always been good at securing government contracts (that's no secret), but those contracts can be lumpy. A big win one quarter doesn't necessarily translate to consistent revenue growth. And while their commercial business is growing, it's still a smaller piece of the pie compared to government revenue. I've looked at hundreds of these filings, and this continued reliance on government contracts is a pattern.

Palantir is up 23% in the past three months and 64% over the past half year. Again, solid gains, but are they sustainable? Details on the specific terms and profitability of these new commercial deals remain scarce, but the impact is clear.

Ralph Lauren: The Exception?

Finally, Ralph Lauren. Twenty-four upward earnings estimates in three months, with an expected $3.45 per share in third-quarter earnings per share. That's up 20% from three months ago and 23% higher in six months.

Ralph Lauren is ahead by 44% in the past six months and 60% in the past year. This is the only one of the three that feels a bit more grounded. Consumer spending on luxury goods has been surprisingly resilient, and Ralph Lauren has been effectively managing its brand and distribution channels. But even here, I'd want to dig deeper into the drivers of that growth. Is it increased sales volume, higher prices, or a combination of both? And how vulnerable is that growth to a potential economic slowdown?

The Mirage of Momentum

So, what's the real story here? While upward earnings revisions are undoubtedly a positive sign, they don't guarantee future success. In fact, they can often be a contrarian indicator. Analysts are prone to herd behavior, and once a stock starts moving, they tend to jump on the bandwagon, potentially overshooting the mark.

The key is to look beyond the headline numbers and understand the underlying drivers of growth. Are those drivers sustainable, or are they based on temporary factors or overly optimistic assumptions? In the cases of Robinhood and Palantir, I see some reasons for caution. The dependence on prediction markets and government contracts, respectively, raises questions about long-term growth prospects. Ralph Lauren, on the other hand, appears to be on a more solid footing, but even there, a healthy dose of skepticism is warranted.

Ultimately, investing is about making informed decisions based on data, not chasing momentum. And sometimes, the most profitable strategy is to simply stay on the sidelines and wait for the dust to settle.

So, What's the Real Story?

Earnings season is always a mixed bag of hype and reality. While the upward revisions for these companies are encouraging, I wouldn't be rushing to buy shares just yet. The market often overreacts to short-term trends, and it's crucial to separate genuine growth from fleeting momentum. Do your homework, dig into the numbers, and don't get caught up in the frenzy. A little bit of skepticism goes a long way on Wall Street.