Alphabet drives S&P 500 earnings growth with paper gains

S&P 500 earnings growth is getting a serious shove from Alphabet, after the Google parent reported second-quarter profit that included a pile of investment gains, according to FactSet and company filings.

MarketWatch reported that 177 companies in the index are scheduled to release results in the coming days, making it the busiest week of the second-quarter earnings season. Before that rush hits, Alphabet has already become the standout name.

Alphabet said its earnings per share rose 300% from a year earlier in the second quarter, while net income reached $112 billion. In its filing, the company said results included $98 billion in “other income,” mostly from unrealized gains on stakes tied to SpaceX and an unnamed private company.

Alphabet has an investment in Anthropic, though the filing did not identify the private company behind part of the gain.

Why did Alphabet boost S&P 500 earnings growth?

The boost came because Alphabet’s reported profit included large unrealized investment gains, which are paper gains on holdings that have risen in value but have not necessarily been sold. Those gains flowed into the company’s quarterly profit and made its contribution to the index unusually large.

FactSet said in a Friday report that Alphabet alone represented 92% of the net dollar increase in earnings for the S&P 500 over the past week. That makes one company a heavyweight in the index’s headline profit picture.

The effect is also clear in the indexwide growth rate. According to FactSet, the S&P 500’s blended earnings growth rate for the second quarter stands at 37.9% when actual results are combined with estimates for companies that have not yet reported. Without Alphabet, that figure would be 25.9%.

FactSet still described the lower number as strong growth for the index, and said it would mark a second straight quarter above 20% even with Alphabet removed.

Margins are on track for a record

Alphabet’s quarter is also helping lift the S&P 500’s profit-margin picture. FactSet data show blended net profit margins at 15.7% for the second quarter, including reported results and forecasts for the companies still to come.

If that margin holds, FactSet said it would be the highest level for the index since the firm began tracking the measure in 2009. The margin figure comes as companies deal with swings in oil prices tied to the Iran war, according to MarketWatch.

The Alphabet results landed while investors are scrutinizing the cost of the artificial-intelligence race. MarketWatch reported that Alphabet, Amazon, Meta Platforms and Microsoft could spend more than $700 billion combined on capital expenses this year, with data centers accounting for much of that outlay.

Richard Windsor, an independent analyst at Radio Free Mobile, said Alphabet’s earnings-per-share number relied heavily on unrealized investment returns that could disappear if conditions turn. MarketWatch also reported that Alphabet posted its first quarter with negative free cash flow as it spends heavily on AI.

Big Tech earnings are next

The next batch of reports will keep Wall Street’s focus on the same corner of the market. Microsoft, Meta, Amazon and Apple are all due to report, according to MarketWatch.

Amazon’s figures may draw extra attention because it also owns a stake in Anthropic. Investors will be watching whether investment gains play a role in its profit numbers as well.

The week also brings results from Starbucks, Chipotle Mexican Grill, Coca-Cola, Mondelez International, Unilever, Hershey, United Parcel Service, Visa, Mastercard and Boeing. MarketWatch reported that those updates will offer fresh clues on consumer spending, rising costs, the Iran war’s impact and the widening cyclospora outbreak.

This story draws on original reporting from MarketWatch.