S&P 500 companies are on track for a 52% increase in second-quarter earnings, helped by large investment gains at Amazon and Alphabet and strong profits across the technology sector. Even excluding those gains, earnings growth is estimated at 33%, while expectations for third-quarter profits have also risen.
S&P 500 companies are closing out a strong second-quarter earnings season, with profits receiving a significant boost from artificial intelligence related investments and strong performance across several major sectors.
Aggregate second-quarter earnings for the S&P 500 are on track to increase 52% from a year earlier, according to LSEG data cited by Reuters. The technology sector is leading the gains, with profits expected to rise 74%.
A substantial portion of the increase has come from large investment gains recorded by Amazon and Alphabet, whose holdings in artificial intelligence companies increased sharply in value during the quarter.
Amazon's second-quarter results included $53.4 billion in non-operating pre-tax other income, primarily related to its investment in AI company Anthropic, according to LSEG earnings researcher Tajinder Dhillon.
Alphabet, meanwhile, reported a $77.1 billion unrealized gain on equity securities, also contributing significantly to its reported earnings.
These are known as mark-to-market gains, which occur when the value of an investment is adjusted to reflect its current market price. Such gains can increase reported profits but can also reverse if the underlying investments lose value.
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Excluding the gains at Amazon and Alphabet, S&P 500 second-quarter earnings growth would be approximately 33%, according to Dhillon. Reuters reported that this would still represent the strongest quarterly earnings growth since 2021.
The strength extends beyond the largest technology companies. Seven of the S&P 500's 11 major sectors are expected to record double digit earnings growth, with the energy sector projected to post growth of about 143%, according to LSEG data cited by Reuters. About 85% of companies reporting results had exceeded analysts' earnings expectations.
Artificial intelligence is also playing an increasingly important role in corporate earnings. Goldman Sachs strategists estimate that AI infrastructure stocks account for roughly one-third of S&P 500 earnings-per-share growth during the second quarter.
Investors remain cautious, however, about elevated valuations surrounding AI companies and the large amounts of capital being committed to build AI infrastructure. Concerns have also emerged over financing arrangements involving major technology companies and AI businesses.
Despite those concerns, analysts have raised their expectations for the third quarter. S&P 500 earnings are now projected to increase 29.2% year over year, up from an earlier forecast of 27.6% at the beginning of July.
The figures indicate that corporate earnings remain strong, although the contribution from large investment gains means investors are likely to continue distinguishing between reported profits and earnings generated by companies' underlying operations.
Source: Reuters, LSEG data cited by Reuters.
Read the original Reuters report
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