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AI Paper Gains Made S&P 500 Q2 Earnings Look Stronger—But Underlying Growth Was Still 32%
S&P 500 second quarter earnings growth reached roughly 50%–52%, but excluding Alphabet and Amazon’s unrealized AI related investment gains reduced the estimate to about 32%–33%. Amazon recorded $53.4 billion in other income primarily tied to its Anthropic investment, while FactSet said Alphabet recorded a $98 billio...
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Key takeaways
- S&P 500 second quarter earnings growth reached roughly 50%–52%, but excluding Alphabet and Amazon’s unrealized AI related investment gains reduced the estimate to about 32%–33%.
- Amazon recorded $53.4 billion in other income primarily tied to its Anthropic investment, while FactSet said Alphabet recorded a $98 billion gain primarily from unrealized equity securities—not the $77.1 billion figur...
- The key investor test is whether operating profit, revenue, and cash flow continue growing after valuation gains reverse or fade.
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openai.comCreate a landscape editorial hero image for this Studio Global article: How did gains in AI-related investments—particularly Amazon’s $53.4 billion in non-operating pre-tax income from its Anthropic investment an. Article summary: The 52% headline growth rate was substantially lifted by non-cash, mark-to-market gains on AI investments rather than by operating profit alone. Amazon’s Anthropic-related income and Alphabet’s unrealized equity-security. Topic tags: general, news, general web, user generated. Style: premium digital editorial illustration, source-backed research mood, clean composition, high detail, modern web publication hero. Use reference image context only for broad subject, composition, and topical grounding; do not copy the exact image. Avoid: logos, brand marks, copyrighted characters, real person likenesses, fake screenshots, UI text, readable text, watermarks, charts w
The S&P 500’s second-quarter earnings season looked extraordinary on the surface: reported year-over-year growth was estimated at roughly 50%–52%, with technology-sector profits up about 74%. But a significant part of that acceleration came from investment revaluations at Alphabet and Amazon rather than from recurring operating income. 1
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FactSet’s August 7 update put blended S&P 500 earnings growth at 50.4%, while later reporting described the index as being on track for a 52% increase. The exact headline varies with reporting progress and methodology, but the central conclusion is consistent: excluding Alphabet and Amazon, growth fell to approximately 32%. Other analyses estimate underlying growth at about 33%. 1
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The accounting effect behind the headline
A mark-to-market gain increases the reported value of an investment when its estimated market value rises. The company may recognize that gain in GAAP earnings even though it has not sold the asset and received no corresponding cash payment.
That distinction matters in this earnings season. FactSet said Amazon’s second-quarter GAAP results included $53.4 billion in other income primarily from investments in Anthropic. It also said Alphabet’s results included a $98 billion gain in other income, primarily from net unrealized gains on equity securities. 12
The available evidence does not support the $77.1 billion Alphabet figure in the original question; the FactSet figure provided for the quarter is $98 billion. The figures should also not be treated as a simple subtraction from the S&P 500 growth rate, because index estimates depend on earnings weights, reporting coverage, comparison periods, and the treatment of each company’s results.
The more useful comparison is the reported index result versus the result excluding the two companies:
- Reported Q2 growth: approximately 50.4%–52% year over year.
- Growth excluding Alphabet and Amazon: approximately 32%–33%.
- Estimated impact: roughly 18–20 percentage points of headline growth.
That adjustment does not make the quarter weak. It shows that the earnings season combined genuine corporate improvement with unusually large, potentially reversible investment gains. 2
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What the broader earnings season says
The underlying performance was stronger than a “paper profits only” narrative suggests. FactSet reported that 86% of S&P 500 companies had exceeded earnings-per-share estimates after 88% of the index had reported. Companies were also beating estimates by an unusually wide margin, with aggregate earnings 29.2% above analyst expectations in the August 7 update. 33
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The evidence therefore supports a two-part interpretation:
- Corporate earnings were broadly strong. Removing Alphabet and Amazon still left roughly 32%–33% growth—well above the growth rate analysts had expected before the season.
- The acceleration was concentrated and partly non-operating. Two companies with large equity stakes contributed disproportionate gains to aggregate index earnings.
Technology’s reported 74% profit increase should be read in the same way. It reflects the strength of the AI economy and technology demand, but it also incorporates major investment revaluations at Alphabet and Amazon. 1
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Why investors are watching AI valuations
Unrealized gains can reverse. If the market value of a private AI company declines, the same accounting mechanism can produce an unrealized loss in a later period. That can make reported earnings volatile even when the company’s core products, revenue, and cash generation have changed less dramatically.
The risk is not that every AI investment gain is illegitimate. The issue is durability. Investors may value a 50%-plus earnings-growth figure as if it represents recurring operating profit, only to discover that a later quarter lacks a comparable valuation increase—or includes a loss instead.
For that reason, the most informative measures in future quarters will be:
- operating income and operating margins;
- revenue from external customers, including AI-related demand;
- free cash flow and capital spending;
- realized investment gains and losses; and
- the size and direction of unrealized gains in other income.
The circular-financing concern
The AI investment cycle has also raised questions about circular financing. The concern is that chip suppliers, cloud providers, investors, data-center developers, and model companies may finance one another’s expansion. Those arrangements can support infrastructure spending and private-company valuations at the same time, creating reported demand and paper gains before independent end-customer cash flows have fully caught up.
That is a risk framework, not proof that a particular transaction is improper. The practical test is whether AI companies can ultimately generate enough external revenue and cash flow to support the infrastructure being financed.
Nvidia’s reported agreement to provide a guarantee of up to $105 billion connected to OpenAI’s lease of a large Ohio data center illustrates why investors are examining these relationships closely. Reuters reported that Nvidia would also invest $1.5 billion in SB Energy, the SoftBank-owned developer of the project. The $105 billion is a guarantee rather than an immediate cash payment, so the company’s exposure would depend on the agreement’s terms and whether obligations were ultimately triggered. 17
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What to watch next
The strongest conclusion from Q2 is not that S&P 500 earnings were fictitious. It is that the headline number needs decomposition.
A reported growth rate near 50%–52% captures both operating earnings and investment revaluations. The approximately 32%–33% result excluding Alphabet and Amazon is a better guide to the breadth of the underlying earnings cycle, while still showing substantial growth. 2
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Investors should therefore compare future results with the Q2 base in three separate ways: recurring operating profit, cash-generating customer demand, and gains or losses from AI-related equity stakes. If the first two continue to expand, the quarter will look like an early stage of durable AI-led growth. If later results depend mainly on new valuation marks, the apparent earnings boom will be more vulnerable to disappointment.
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What is the short answer to "AI Paper Gains Made S&P 500 Q2 Earnings Look Stronger—But Underlying Growth Was Still 32%"?
S&P 500 second quarter earnings growth reached roughly 50%–52%, but excluding Alphabet and Amazon’s unrealized AI related investment gains reduced the estimate to about 32%–33%.
What are the key points to validate first?
S&P 500 second quarter earnings growth reached roughly 50%–52%, but excluding Alphabet and Amazon’s unrealized AI related investment gains reduced the estimate to about 32%–33%. Amazon recorded $53.4 billion in other income primarily tied to its Anthropic investment, while FactSet said Alphabet recorded a $98 billion gain primarily from unrealized equity securities—not the $77.1 billion figur...
What should I do next in practice?
The key investor test is whether operating profit, revenue, and cash flow continue growing after valuation gains reverse or fade.