How Alphabet's $98 Billion Paper Gain on SpaceX and Anthropic Skewed S&P 500 Earnings Data

The short version: The S&P 500 just posted its strongest earnings growth since 2021, surging nearly 48% in the second quarter of 2026. But beneath the headline data lies a massive accounting distortion. Nearly half of that growth did not come from selling more software, advertising, or consumer goods. Instead, it came from unrealized paper gains on private and newly public artificial intelligence and space companies, artificially inflating the index's apparent health.[1][4]

The primary driver of this statistical anomaly is Alphabet. The Google parent company reported a staggering 300% year-over-year increase in net income, posting $112.1 billion for the quarter. However, $98 billion of that total was classified as "other income," stemming entirely from mark-to-market gains on its equity investments.[2][3]

The mechanism behind this data skew is a Generally Accepted Accounting Principles (GAAP) rule that requires public companies to regularly revalue their equity investments. When the estimated value of those holdings goes up, the difference must be recorded as net income on the income statement, even if the company has not sold a single share and no cash has actually changed hands.[1][4]

For Alphabet, the windfall was triggered by two specific investments. The first is Space Exploration Technologies (SpaceX). Alphabet acquired a roughly 4% to 6% stake in SpaceX years ago for less than $1 billion. When SpaceX went public in June 2026 at a record-breaking $1.77 trillion valuation, Alphabet's stake was suddenly worth over $90 billion on paper.[2][3]

The second driver is Anthropic, the artificial intelligence startup behind the Claude language model. According to market data firm Dealroom, Anthropic's private valuation surged from $350 billion to $965 billion over the past year. Because Alphabet, Amazon, and Microsoft all hold substantial stakes in Anthropic, all three were forced to mark up the value of their holdings simultaneously.[2][4]

Amazon recorded $53.4 billion in pre-tax other income, primarily from its Anthropic revaluation, while Microsoft added a more modest $3.2 billion from Anthropic and $480 million from OpenAI. Together, these three tech giants injected over $150 billion in non-operating paper profits into the S&P 500's aggregate earnings pool.[1][4]

The impact on macroeconomic data is profound. According to Tajinder Dhillon, head of earnings and equity research at LSEG, the S&P 500's aggregate earnings growth for Q2 2026 was reported at roughly 48%. But when analysts strip out the investment gains from just Alphabet and Amazon, that growth rate plummets to 29%.[4][5]

FactSet's data corroborates this distortion. John Butters, senior earnings analyst at FactSet, calculated a blended earnings growth rate of 47.4% for the index. Excluding Alphabet and Amazon, the figure drops to 28.8%. While 28.8% still represents exceptionally strong corporate performance, the 19-percentage-point gap illustrates how heavily a few equity portfolios can warp the broader market narrative.[1][6]

"The headline earnings numbers were very much inflated by equity gains in OpenAI, Anthropic, and SpaceX," Gil Luria, managing director at D.A. Davidson, noted in a recent analysis. Because these gains do not generate actual cash flow, most financial analysts exclude them when calculating non-GAAP operating metrics.[4][5]

The evidence pack reveals a stark divergence between GAAP net income and free cash flow. While Alphabet reported record-breaking profits, independent analysts point out that the company actually posted negative free cash flow for the quarter—a deficit of $5.8 billion—driven by an unrelenting surge in capital expenditures for AI infrastructure.[6]

This creates a precarious situation for data analysts forecasting future index performance. Mark-to-market accounting is a double-edged sword: what goes up must eventually be marked down if valuations cool.[4][5]

The data already suggests a reversal is imminent. Following its June IPO, SpaceX's stock price has reportedly fallen roughly 50% from its post-listing highs. Unless Anthropic executes a highly successful public offering in the fall to offset the difference, Alphabet will be required to record a massive valuation loss in its September quarter.[4][5]

For investors and economists relying on S&P 500 earnings as a barometer for the US economy, the Q2 data serves as a critical lesson in data hygiene. The underlying operating growth of corporate America remains robust, with semiconductor and cloud revenues showing genuine expansion.[1][6]

But as tech giants increasingly act as venture capital funds for the frontier AI ecosystem, headline earnings figures will become increasingly noisy. Reading the data now requires separating the companies building the infrastructure from the paper valuations of the startups they fund.[1][4]