Key facts
- S&P 500 companies are on track for a 52% surge in aggregate second-quarter earnings from the year before.
- The technology sector saw a 74% profit jump, boosted by AI investments.
- Alphabet and Amazon reported significant mark-to-market gains from investments in AI companies like Anthropic.
- Excluding these specific gains, S&P 500 profit growth is estimated at 33%.
- AI infrastructure stocks are estimated to account for roughly a third of S&P 500 earnings per share growth for the quarter.
- Nvidia announced a guarantee of up to $105 billion to support OpenAI's data center leasing.
S&P 500 companies are concluding a robust second-quarter earnings season, with overall profits surging 52% year-over-year, significantly bolstered by substantial mark-to-market gains from AI-related investments held by tech giants like Alphabet and Amazon. The technology sector alone saw a 74% profit jump.
These significant non-operating gains, particularly from investments in AI companies such as Anthropic, have inflated the headline earnings figures. Excluding these mark-to-market boosts, the S&P 500's profit growth for the quarter is estimated at 33%, still representing the strongest performance since 2021 but highlighting a notable difference.
Strategists at Goldman Sachs noted that AI infrastructure stocks contributed approximately one-third of the S&P 500's earnings per share growth in the second quarter. However, investor sentiment is tempered by concerns over the high valuations of AI-related companies and the sustainability of their financing structures, including deals between Nvidia and its customers.
Nvidia, the world's most valuable company, recently announced a guarantee of up to $105 billion to facilitate OpenAI's lease of a large data center. While Nvidia shares initially rose, they later declined as part of a broader technology sector pullback, influenced by the substantial costs associated with the AI buildout and a nervous U.S. bond market.
Analysts like Michael O’Rourke of JonesTrading expressed caution, suggesting that current aggressive AI investments might be borrowing from future growth, potentially setting up for future disappointments. He advised investors to be aware of this dynamic.
Amazon's second-quarter net income included $53.4 billion in non-operating pre-tax income primarily from its Anthropic investments. Alphabet reported a $77.1 billion unrealized gain on equity securities. These mark-to-market gains also boosted first-quarter earnings, though to a lesser extent.
Beyond technology, other sectors also contributed to strong earnings. Seven of the 11 major S&P 500 sectors reported at least double-digit year-over-year earnings growth, with the energy sector estimated to have grown by approximately 143% for the quarter. Overall, about 85% of companies have surpassed analyst earnings expectations.
Looking ahead, expectations for the third quarter have also improved, with analysts now projecting a 29.2% profit gain for S&P 500 companies, up from 27.6% at the start of July. Positive outlooks for the upcoming quarter are significantly outweighing negative ones.