S&P 500 companies are winding up a banner quarterly earnings season, fueled in large part by surging profits at AI-related companies.
The S&P 500 is on track for a 52% surge in aggregate second-quarter earnings from the year before, helped by a 74% profit jump in the technology sector. The figures include big mark-to-market boosts at Alphabet (GOOGL.O) and Amazon (AMZN.O), both of which recognized large gains in the period on investments in AI highfliers such as Anthropic.
Excluding those gains, the latest estimate for S&P 500 second-quarter profit growth would be 33%, according to Tajinder Dhillon, head of earnings research at LSEG. That is still the strongest quarter since 2021, in the wake of the pandemic's start, but the gap is worth considering because many investors view mark-to-market profit gains with caution as they can accentuate the impact of market swings on a company's performance.
"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 said this month that AI infrastructure stocks account for roughly a third of S&P 500 earnings per share growth for the second quarter.
INVESTOR CAUTION OVER AI VALUATIONS
Optimism about AI-related companies has driven Wall Street higher in recent years, but investors have become increasingly nervous about elevated valuations and circular financing deals, including those between dominant AI chipmaker Nvidia (NVDA.O) and its customers.
Nvidia, the world's most valuable company, said on Monday it would provide a guarantee of up to $105 billion to help OpenAI lease a sprawling data center in Ohio. Nvidia shares rose on Monday but declined the next day in a broad technology pullback centering on the cost of the AI buildout, particularly in a nervous 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."
ALPHABET, AMAZON GAINS DETAILED
Amazon's second-quarter 2026 net income included non-operating pre-tax other income of $53.4 billion, primarily from its investments in Anthropic, according to Dhillon, while Alphabet's results included a $77.1 billion unrealized gain on equity securities.
"Mark-to-market" gains from those two companies also boosted first-quarter year-over-year S&P 500 earnings growth, he said, but not by as much. S&P 500 earnings grew 29.4% for the first quarter including those gains. They increased 22.3% without them, his data showed.
LSEG's quarterly earnings data is given on a "blended basis," which means that they can either be on a GAAP or non-GAAP basis, Dhillon noted.
To be sure, big earnings growth is coming from other sectors as well for the second quarter. Seven of the 11 major S&P 500 sectors have at least double-digit year-over-year earnings gains, with estimated energy (.SPNY) growth now at about 143% for the quarter, based on LSEG data. Some 85% of companies are beating analyst earnings expectations, with results in from more than 450 of the S&P 500 as of Friday, based on LSEG data.
Expectations for third-quarter earnings have jumped as well, with analysts now projecting a 29.2% profit gain for S&P 500 companies, up from 27.6% at the start of July, and positive outlooks so far sharply outpacing negative ones for that quarter.
