Second-quarter earnings for the S&P 500 surged 52% year-over-year, driven by sharp gains in technology stocks and unrealized mark-to-market profits on AI-related investments. Excluding these gains, aggregate profit growth still reached 33%, marking the strongest quarter since 2021.
The technology sector led the advance with a 74% increase in profits, while Goldman Sachs strategists noted that AI infrastructure stocks contributed roughly one-third of the S&P 500’s earnings-per-share growth for the quarter. Energy earnings posted the sharpest gain, expanding 143% year-over-year, followed by double-digit increases in seven of the 11 major S&P 500 sectors.
Analysts at LSEG reported that 85% of companies reporting so far have exceeded earnings expectations, based on results from more than 450 constituents. The earnings beat rate remains elevated despite concerns over the sustainability of mark-to-market gains, which can reverse as quickly as they materialize.
Major contributors to the gains included Alphabet, which recorded a $77.1 billion unrealized gain on equity securities, and Amazon, whose second-quarter net income included $53.4 billion in non-operating pre-tax income from investments in Anthropic. Nvidia also made headlines by pledging up to $105 billion in guarantees to support OpenAI’s Ohio data center lease, underscoring the scale of investments tied to AI infrastructure.
Looking ahead, third-quarter earnings are projected to rise 29.2% year-over-year, up from an earlier estimate of 27.6%, according to strategists. The first quarter had already seen a 29.4% increase in S&P 500 earnings, though excluding mark-to-market gains, growth was 22.3%.
Equity strategists remain cautious about the reliance on volatile gains. BofA Securities’ Savita Subramanian warned that mark-to-market profits can reverse just as rapidly as they accrue, reducing earnings visibility. JonesTrading’s Michael O’Rourke cautioned that heavy borrowing and stock sales by hyperscale cloud providers could set the stage for future earnings disappointments, despite the current upside momentum.
