S&P 500 companies wrapped a robust second-quarter earnings season, with headline figures heavily influenced by large, investment-related gains at firms tied to artificial intelligence. On a blended basis, aggregate earnings for the index are on track to increase 52% from the same quarter a year earlier, supported by a 74% leap in technology sector profits.
Those broad gains include substantial mark-to-market boosts at two of the largest tech names. Alphabet recorded an unrealized gain on equity securities of $77.1 billion in the period, while Amazon’s second-quarter net income included non-operating pre-tax other income of $53.4 billion, primarily from its investments in Anthropic, according to Tajinder Dhillon, head of earnings research at LSEG.
Excluding those valuation-related increments, LSEG’s latest estimate for S&P 500 second-quarter profit growth falls to 33% year over year. Dhillon noted that LSEG’s quarterly earnings data are reported on a blended basis, meaning figures may be presented on either a GAAP or non-GAAP basis.
Even after stripping out those unrealized gains, the remaining projected growth would still represent the strongest quarter since the pandemic-related upheaval in 2021, underscoring that solid operational results are also contributing to the upturn. Nonetheless, the magnitude of mark-to-market items has drawn investor scrutiny because such gains can reverse quickly if market prices move against the positions.
"Mark-to-market gains can turn into losses just as fast," Savita Subramanian, equity and quant strategist at BofA Securities, wrote in a recent client note. "We are not arguing mark-to-market gains are bad, though we remain cautious that increasing earnings dependence on (largely) uncontrollable factors reduces visibility."
Goldman Sachs strategists estimated this month that AI infrastructure-related stocks account for about one-third of S&P 500 earnings-per-share growth for the second quarter, highlighting the outsized influence of that segment on index-level results.
Investor enthusiasm for AI-linked businesses has been a major driver of market gains in recent years, but the rise in valuations and the prevalence of circular financing arrangements have raised concerns. The article’s reporting highlighted investor unease around deals and relationships among dominant AI suppliers and their customers, including arrangements involving Nvidia.
In a notable corporate financing move, Nvidia said it would provide a guarantee of up to $105 billion to support OpenAI’s lease of a large data center in Ohio. Nvidia shares rose on the day the guarantee was announced but fell the following day amid a broader technology sector pullback, which market participants linked to worries about the scale and cost of the AI buildout and nervousness in the U.S. bond market.
"As far as the hyperscalers go, they’re borrowing money, they’re selling stock," said Michael O’Rourke, chief market strategist at JonesTrading in Stamford, Connecticut. "We’re probably stealing from the future here. So as much as we’re shooting to the upside in earnings, that sets us up for disappointments next year or the following year... Investors need to be cognizant of that."
While technology’s outsized gains drew the most attention, other sectors also contributed meaningfully to the quarter’s strong results. According to LSEG data, seven of the 11 major S&P 500 sectors posted at least double-digit year-over-year earnings growth. Energy was a standout, with estimated earnings growth near 143% for the quarter.
Company-level beats were common: roughly 85% of firms reporting had results above analyst expectations, based on more than 450 S&P 500 companies that had reported as of Friday, per LSEG.
Looking ahead, analyst expectations for the third quarter have risen. Forecasts now call for S&P 500 profit growth of 29.2%, up from 27.6% at the start of July, and so far positive outlooks from management teams have outnumbered negative ones for the period.
Summary of notable accounting contributions in the quarter:
- Alphabet: $77.1 billion unrealized gain on equity securities included in second-quarter results.
- Amazon: $53.4 billion in non-operating pre-tax other income, primarily tied to investments in Anthropic.
- Nvidia: announced a guarantee of up to $105 billion to help OpenAI lease a data center in Ohio; stock reaction mixed across two trading days.
Given the scale of these investment-related line items, analysts and investors are parsing reported results to distinguish between gains driven by market revaluations and those stemming from recurring operating strength. LSEG’s blended reporting approach means some figures reflect GAAP recognition while others may follow non-GAAP presentations, which can further complicate direct comparisons.
Ultimately, the quarter illustrates the extent to which AI-related businesses have shifted the earnings landscape: they are lifting headline growth numbers materially, but they also introduce volatility and reduce line-of-sight into future operating performance when a meaningful portion of reported profits derives from unrealized investment gains.