Big Tech AI Stakes Inflate S&P 500 Earnings by 19 Points

The headline earnings picture for the S&P 500 looks a lot healthier than it really is. A big reason: investment gains from stakes in Anthropic, OpenAI and SpaceX at three of the largest tech companies.

Microsoft, Amazon and Alphabet all booked sizable gains in the most recent quarter from their private-company holdings. Anthropic and OpenAI have both seen their valuations surge in private markets, each sitting just south of $1 trillion. Amazon and Microsoft are shareholders in both companies. Alphabet holds a stake in Anthropic and roughly 5% of SpaceX.

Those gains distort the operating profits that actually come from selling software or cloud services.

Aggregate S&P 500 earnings growth for the quarter hit about 48% year over year, according to LSEG head of earnings and equity research Tajinder Dhillon. Strip out the private-company gains from just Amazon and Alphabet, and the figure drops to roughly 29%. That is much closer to the 24% analysts had forecast before the quarter.

"The headline earnings numbers were very much inflated by equity gains in OpenAI, Anthropic and SpaceX," said Gil Luria, managing director and head of technology research at D.A. Davidson. "Having said that, these types of moves tend to even out over time, which is why we typically exclude them from a non-GAAP view and from forecasts."

Most analysts already strip out these one-time items. But the distortion still matters. Earnings this quarter came in 7% above expectations, per LSEG. The long-term average is 4.4%.

The dynamic is amplified by the outsize weighting of mega-cap tech. The so-called Magnificent Seven names accounted for about 35% of S&P 500 second-quarter revenue, Dhillon said. This group has represented roughly a third of the overall index in the past year.

There is no uniform reporting method. The gains fall into "other income," and the three companies handle disclosure differently.

Amazon is a major backer of both OpenAI and Anthropic. It committed $50 billion to the ChatGPT maker in late February. Its earnings jumped more than 240% from a year ago. Without the investment gains, that figure was closer to 17%. Amazon booked a $53.4 billion gain "primarily from" its Anthropic stake.

Alphabet saw a similar effect, mostly from SpaceX. Its bottom-line growth surged nearly 300%. Excluding the gains from SpaceX and Anthropic, the jump was closer to 23%.

Microsoft's impact was more muted but still material. Investment gains added about 10 percentage points to its earnings growth. The company reported a $3.2 billion net income gain it said was mostly from Anthropic, plus a $480 million gain on its OpenAI stake.

The pattern underscores how deeply the largest tech firms are tied to private AI companies that have not yet hit public markets. Anthropic and OpenAI have both filed confidentially with the SEC. Listings are expected within the next year.

Luria pointed out that the earnings distortion can reverse. SpaceX, for example, is down roughly 50% from its post-IPO high in secondary trading.

"Specifically, based on where SpaceX is trading now, GOOGL will likely have a big reversal in their mark-to-market when they report the September quarter," he said. "A successful Anthropic IPO in September could offset that, but it is too early to tell."

Not everyone sees the distortion as a problem. Jeff Kilburg, founder and CEO of KKM Financial, called the profits from tech giants "sprinkles" on top of an already strong earnings season. Even excluding the private-asset gains, he called the jump in corporate earnings "jaw dropping."

For investors, the lesson is straightforward. The headline 48% growth number is not repeatable. The 29% figure, after stripping out two companies' investment gains, is closer to what the operating business is producing. And that number, while lower, is still well above the historical average.

CNBC's Robert Hum contributed reporting.