Microsoft, Amazon and Alphabet booked large paper gains from their stakes in Anthropic, OpenAI and SpaceX this quarter, distorting how strong S&P 500 earnings growth really looks. Stripped of those investment gains, growth falls from around 48% to about 29%, according to LSEG. D.A. Davidson's Gil Luria says Alphabet could see a similarly sharp reversal when it reports its September-quarter results.
Microsoft, Amazon and Alphabet booked sizable investment gains this quarter from their stakes in Anthropic, OpenAI and SpaceX, distorting how strong the S&P 500's earnings season looks. S&P 500 earnings grew around 48% from a year earlier, according to Tajinder Dhillon, LSEG's head of earnings and equity research. Strip out those investment gains, and growth falls to about 29%, much closer to the 24% analysts had forecast.
Amazon and Alphabet see the biggest swings
Amazon's earnings jumped more than 240% from a year earlier, but the increase would be closer to 17% without a $53.4 billion gain the company attributed mainly to its investment in Anthropic. The company committed $50 billion to OpenAI in late February and was also an early investor in Anthropic.
Alphabet's bottom-line growth surged nearly 300%, thanks largely to its roughly 5% stake in SpaceX and its stake in Anthropic. Without those gains, the increase would be closer to 23%.
Microsoft's impact was more muted. A $3.2 billion net income gain, mostly from Anthropic, added about 10 percentage points to its earnings growth. The company also booked a $480 million gain on its OpenAI stake.
Why the swings matter
These gains typically show up in the other-income line, which varies by company and complicates comparisons. The dynamic carries extra weight because the Magnificent Seven accounted for about 35% of S&P 500 second-quarter revenue. The group has represented roughly a third of the large-cap index over the past year.
The distortion also widened the pattern of earnings beats. Companies this quarter reported earnings 7% above expectations. That compares with a long-term average of 4.4% above consensus.
Gil Luria of D.A. Davidson called the headline numbers "very much inflated by equity gains in OpenAI, Anthropic and SpaceX." He expects the swings to even out over time, noting these gains are typically excluded from non-GAAP figures and forecasts.
SpaceX has fallen roughly 50% from its post-IPO high. Luria said Alphabet will likely see a big mark-to-market reversal when it reports its September-quarter results, unless a successful Anthropic IPO offsets it — which he added is too early to call.
Others call the earnings season strong regardless
KKM Financial's Jeff Kilburg still calls the underlying earnings season strong, viewing the tech giants' investment gains as a small addition on top of already strong profits. He says corporate earnings growth stood out even without private-company stakes.
The dynamic underlines how intertwined these AI companies are with Big Tech, even before Anthropic and OpenAI reach public markets themselves — both have filed confidentially with the SEC and are expected to list within the next year.
Source: CNBC
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