Goldman Sachs noted that the S&P 500’s second-quarter EPS appeared to surge 45% year-over-year, but 19 percentage points of this increase stemmed from unrealized gains on equity investments in Alphabet and Amazon. Excluding these, underlying earnings growth was approximately 26%. More importantly, this growth was highly concentrated among leaders in the AI supply chain, with the top ten companies accounting for nearly 80% of the total EPS growth. The central question of this earnings season is not whether earnings have grown, but rather where the growth is coming from and whether it is sustainable.
The Q2 2026 U.S. earnings season is reshaping market expectations for corporate profitability. Year-over-year EPS growth for S&P 500 companies briefly reached 45%, far exceeding the market’s initial forecast of approximately 22% at the start of the earnings season, with the proportion of companies beating expectations also standing at a historical high.
However, behind these impressive figures, the composition of earnings is shifting. Goldman Sachs’ analysis reveals that about 19 percentage points of the S&P 500’s Q2 EPS growth stemmed from 'other income' reported by Alphabet and Amazon—primarily unrealized gains on equity investments rather than growth in core operating profits.
Excluding these non-operating gains, the S&P 500’s Q2 year-over-year EPS growth still reached approximately 26%, indicating that underlying corporate fundamentals remain sound. At the same time, however, U.S. equity earnings are becoming increasingly concentrated among a small number of AI beneficiaries. Mega-cap tech firms continue to ramp up capital expenditures and are beginning to rely on debt and equity financing to support their AI infrastructure investments.
In other words, the central issue this earnings season is not whether earnings have grown, but where that growth originates and whether it is sustainable.
Of the 45% EPS growth, nearly half came from investment gains
The most closely watched figure this quarter is the 45% year-over-year increase in S&P 500 Q2 EPS. While this growth significantly surpassed prior market expectations, Goldman Sachs notes that a substantial portion stems from 'other income' items.
Data show that Alphabet and Amazon together contributed approximately 19 percentage points to EPS growth in Q2, primarily driven by unrealized gains on their equity investments; Microsoft also reported around $3 billion in other income. Specifically, Alphabet recorded roughly $98 billion in other income for the quarter, while Amazon reported about $53 billion, largely attributable to the rising valuation of their private-company equity stakes.
After adjusting for these factors, the S&P 500’s Q2 year-over-year EPS growth stood at approximately 26%. Although notably lower than the headline 45% figure, it remains one of the fastest growth rates since 2021.
This implies that U.S. equity earnings are not solely inflated by accounting-driven gains, but earnings quality is evolving: investment income is becoming an increasingly significant component of large tech companies’ profits. Data indicate that in Q2 2026, 'other income' accounted for 61% of GAAP net income among mega-cap technology firms—a marked increase compared to historical levels.
The better the earnings, the smaller the market reward
While earnings figures remain robust, market reactions have shifted.
As of July 31, 61% of S&P 500 companies had reported second-quarter results, representing approximately 66% of the index’s market capitalization. Of these, about 64% reported earnings per share (EPS) that exceeded consensus expectations by at least one standard deviation—a proportion near historical highs. However, the positive stock price reaction to such earnings beats has been notably weaker than in the past.
According to Goldman Sachs, historically, S&P 500 companies that beat EPS expectations saw their shares outperform the index by an average of 95 basis points on the following trading day. This quarter, however, even TMT companies that surpassed earnings expectations underperformed the S&P 500 by an average of 192 basis points the next day.
In contrast, non-TMT companies that beat earnings expectations recorded an average positive excess return of approximately 75 basis points the following day. The market is sending a clear signal: for AI industry leaders, investors have already priced in high growth expectations, and mere earnings beats are no longer sufficient to drive further share price gains.
AI Is Reshaping the U.S. Equity Earnings Landscape
U.S. equity earnings growth is becoming increasingly concentrated in the AI supply chain. Goldman Sachs data shows that companies tied to AI infrastructure accounted for roughly one-third of the S&P 500’s EPS growth in the second quarter. Looking ahead to the second half of 2026 and 2027, this segment is expected to contribute more than half of the index’s incremental earnings growth.
In terms of individual company contributions, Alphabet accounted for approximately 28% of the S&P 500’s second-quarter EPS growth, Amazon contributed about 16%, Micron Technology about 10%, and NVIDIA is projected to contribute around 9%. The top ten contributors collectively accounted for roughly 79% of earnings growth, indicating that the S&P 500’s overall earnings performance is becoming increasingly dependent on a handful of beneficiaries from AI infrastructure spending.
For index investors, earnings growth remains strong; however, from a market structure perspective, rising earnings concentration implies heightened risk concentration as well.
AI Investment Surges, Pressuring Cash Flows
Another notable development this earnings season is the mounting capital expenditure pressure on hyperscale technology firms. Cloud revenue at Alphabet, Amazon, and Microsoft grew 48% year-over-year in the second quarter, accelerating significantly from the 39% growth rate in the first quarter, as AI demand translates into cloud computing expansion.
However, in the race to secure an advantage in AI infrastructure, corporate capital expenditures have expanded rapidly. In the second quarter, the aforementioned hyperscale technology companies reported combined capital expenditures of $182 billion, while their free cash flow during the same period amounted to only approximately $5 billion. This funding gap is compelling companies to rely more heavily on external financing. In Q2, these firms collectively issued about $51 billion in bonds and raised roughly $50 billion through equity financing.
Goldman Sachs forecasts that capital expenditures by hyperscale technology companies will exceed $1 trillion in 2027, representing a year-over-year increase of approximately 33%—a significant upward revision from its initial forecast at the beginning of the year. As the AI investment cycle continues, tech giants may need to repeatedly access capital markets. Goldman Sachs’ credit team estimates that these companies could issue around $400 billion in investment-grade bonds in 2027.
Profit growth driven by AI continues, but whether capital expenditures can translate into sufficient returns will be a key focus for markets going forward.
Editor/lambor