The S&P 500 is entering the second half of 2026 with an earnings picture that is difficult to ignore. Companies are not merely clearing analyst estimates; they are clearing them by a record margin.
At the same time, corporate profitability has reached a new high, while spending on artificial intelligence, semiconductors, and data-center infrastructure is translating into faster growth across multiple industries. That matters because stock prices ultimately need earnings to justify them.
The catch is that two companies — Alphabet (NASDAQ:GOOG | GOOG Price Prediction) and Amazon (NASDAQ:AMZN) — are making the headline numbers look even better than the underlying picture. Strip them out, and the earnings story gets less spectacular but remains remarkably healthy.
The Biggest Earnings Beat On Record
According to FactSet’s Aug. 7 Earnings Insight, S&P 500 companies have reported earnings 29.2% above analysts’ estimates in aggregate — more than four times larger than the 7.0% five-year average.
If 29.2% holds through the end of earnings season, it will be the largest aggregate earnings surprise since FactSet began tracking the measure in 2008, surpassing the previous record of 23.2% set in the second quarter of 2020.
The breadth is notable, too. Eighty-six percent of reporting companies have beaten EPS estimates, versus a five-year average of 78%. Revenue surprises are positive as well, with companies reporting sales 3.2% above expectations.
And profitability is moving in the same direction. The blended S&P 500 net profit margin has reached 16.9%, up from 14.8% last quarter and 12.9% a year ago. FactSet says that would be the highest margin in its data going back to 2009.
Alphabet And Amazon Change The Picture
Here’s where investors need to read past the headline. Alphabet and Amazon produced enormous EPS surprises, partly because of investment revaluations. Alphabet reported $9.11 of Q2 EPS versus a $2.88 consensus estimate, while Amazon reported $5.75 versus $1.82.
Alphabet’s GAAP results included $98 billion of other income, primarily from unrealized gains on equity securities, such as SpaceX (NASDAQ:SPCX) and Anthropic. Amazon included $53.4 billion of other income, primarily related to its Anthropic investment. These aren’t operating profits generated by selling advertising, cloud services, or merchandise. They are accounting gains tied to higher valuations of investments.
FactSet calculates that removing the two companies would reduce the S&P 500’s earnings surprise from 29.2% to 10.9%. That’s not the record-breaking figure — but it is still comfortably above the five-year average.
The same adjustment reduces Q2 year-over-year earnings growth from 50.4% to 32.0%. In other words, the headline number is flattered, but the underlying earnings engine isn’t disappearing.
AI Is Showing Up In Real Earnings
FactSet reports that the Information Technology sector is growing earnings 70.4% year over year, with semiconductors and semiconductor equipment up 135%. Technology hardware, storage, and peripherals are growing 55%. Revenue growth tells a similar story: semiconductor revenue is up 77%, while technology hardware revenue is up 31%.
That’s the investment thesis worth watching. The AI boom is no longer confined to companies selling software models. It is driving demand for chips, servers, networking equipment, data centers, electricity, and cloud capacity. Amazon’s AWS revenue, for example, increased 37% in Q2 to $42.2 billion, while operating income rose 63% to $16.6 billion.
At the same time, FactSet says the S&P 500’s forward P/E is 20.0, above its 10-year average of 19.0. That valuation leaves less room for earnings disappointments.
Key Takeaway
In short, investors shouldn’t dismiss this earnings season because Alphabet and Amazon distorted the headline.
Yes, removing them cuts the S&P 500’s earnings growth rate to 32.0% and its earnings surprise to 10.9%. But those figures remain strong, while margins hit a record 16.9% and semiconductor earnings are growing 135%.
That makes the bigger story clear: AI is producing genuine operating growth across a widening slice of corporate America.
The risk is valuation. With the S&P 500 trading at 20 times forward earnings, investors are already paying for continued execution. Smart investors should focus less on the 50.4% headline growth rate and more on whether the companies underneath it can keep delivering double-digit earnings growth as AI infrastructure spending expands.
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