The number you will hear on every market recap this week is 37.9%. That is FactSet’s blended year-over-year earnings growth rate for the S&P 500 in the second quarter, as of its July 24 update — the kind of figure that gets called a boom.
FactSet published the asterisk in the same document. Excluding Alphabet, the blended growth rate for the index falls to 25.9%.
One company, twelve percentage points. And the twelve points did not come from selling anything.
Our take: 25.9% is still an excellent quarter — this is not a story about weak earnings dressed up. It is a story about a headline number that has quietly become a proxy for private AI valuations. When one line item on one income statement swings the whole index by twelve points, “S&P 500 earnings growth” has stopped describing what American companies earned and started describing what a venture round decided something was worth.
Where the twelve points came from
Alphabet reported other income of $98.0 billion for the quarter, driven by a roughly $99.0 billion gain on equity securities. That carried net income available to common shareholders to $112.1 billion, up 298%, and diluted EPS to $9.11, up 294%.
The gain is a markup on minority stakes in private companies — principally Anthropic and SpaceX, per Fortune’s read of the filing. The largest input is not hard to find: Anthropic closed a $65 billion Series H at a $965 billion post-money valuation in late May, nearly tripling the $380 billion mark it carried in February. Alphabet holds roughly 14%, worth about $135 billion at the new price. Bank of America put the Anthropic markup alone on the order of $80 billion.
None of this is aggressive accounting. Under FASB’s ASU 2016-01, in force since 2018, companies must mark equity stakes to fair value every quarter and run the change straight through net income. Alphabet had no choice about the $99 billion. Which is precisely the problem: it has no choice on the way back down either.
The margin record has the same fingerprint
The index’s blended net profit margin for the quarter is 15.7% — on track to be the highest FactSet has recorded since it began tracking the metric in 2009, against a five-year average of 12.4%.
Remove Alphabet and 15.7% becomes 14.4% — below the 14.8% the index posted last quarter. No quarter’s comparison is perfectly clean, but the direction is the point. The record depends on the mark.
The quarter underneath is genuinely good
Here is what makes this more interesting than a debunking. Of the 81 S&P 500 companies that had reported by Friday, 91.4% beat EPS estimates and 81.5% beat on revenue, matching the five-year high set in the third quarter of 2021. Alphabet’s own operating business accelerated: revenue up 24%, consolidated operating income up 30%, Google Cloud up 82%.
And the stock fell anyway, on a capex increase. That is the tell. The market spent about four seconds on the $98 billion and the rest of the session on the spending line — the same instinct behind Moody’s warning on Big Tech’s $785 billion capex bill. Professional money already discounts the paper gain. The index-level statistic does not.
What to watch
- Wednesday and Thursday: Microsoft and Meta, then Apple and Amazon — roughly 17% of the index’s market cap in 48 hours. None carries an Anthropic-sized private mark, so the blended rate should drift toward the ex-Alphabet number as they land.
- Which figure gets quoted: 37.9% or 25.9%. Strategists who use the first to justify a multiple are pricing a venture round, not a cash flow.
- The reverse gear: the next time a private AI valuation is flat or lower, ASU 2016-01 pushes the loss through net income with the same force. A down round becomes an earnings miss.
- Wednesday, 2 p.m. ET: the Fed lands hours before the hyperscalers — the same afternoon carries the discount rate and the spending bill. Friday brings June core PCE.
- Q3 guidance language: with beat rates at five-year highs, the risk in the back half is the bar, not the results.
Earnings season is supposed to be the part of the cycle where narrative gets checked against cash. This quarter, the headline check bounced through a private-market valuation and landed in a public index. The bond market spent last week repricing the discount rate. Equity investors spent it congratulating themselves on a number that, twelve points of it, nobody has been paid.