Earnings Forecasts Are on Steroids

By the Editorial Team · Tuesday, June 30, 2026

Major U.S. corporations reported exceptionally strong profits in the second quarter, driven in part by accounting gains from investments in private AI firms, leading analysts to raise S&P 500 earnings forecasts by 3.4%. However, experts warn these gains are largely paper profits tied to valuation uplifts rather than actual cash flow, raising concerns about sustainability despite expectations for continued growth.

As the second quarter closes this Tuesday, major U.S. corporations have posted exceptionally strong profits, prompting analysts to raise their earnings forecasts for the S&P 500 by 3.4% since the end of March. This marks a notable departure from historical trends, where analysts typically lower their earnings-per-share (EPS) forecasts during the quarter, creating room for companies to report positive surprises. Over the past 40 quarters, the average forecast adjustment has been a 2.7% decrease.

The robust earnings come on the heels of the most profitable quarter on record for the S&P 500, both in terms of net margin and total dollars earned. Analysts characterize this growth as more typical of a recovery phase following a recession rather than the sixth year of an economic expansion. While profit margins are expected to slip slightly for the current quarter, continued positive surprises are anticipated to drive earnings to new highs once the reports are released.

A significant driver behind these standout results has been accounting adjustments tied to companies’ investments in private artificial intelligence firms. Leading tech players such as Alphabet, Amazon, and Nvidia reported elevated operating income in the first quarter due to valuation increases in unlisted AI companies like Anthropic and OpenAI. When these private companies raised capital at higher valuations, the stakes held by the publicly traded firms were marked up accordingly, resulting in what would normally be a minor accounting item becoming a substantial boost—for the first quarter, it accounted for roughly 12% of total S&P 500 profits.

University of Florida finance professor Baolian Wang warns that the second quarter could see this effect magnified by two to three times. Wang cautions that these gains are purely accounting measures rather than actual cash profits and risk creating a “circular valuation loop.” Strong earnings reported by publicly listed tech firms are fueling optimism about private firms, pushing their valuations higher and generating further accounting markups in a reinforcing cycle.

Despite this, analysts appear to be integrating these extraordinary gains into their bottom-up earnings projections for the S&P 500, assuming continued exceptional performance in the years ahead. EPS growth is expected to outpace sales growth through 2026, 2027, and 2028—a scenario that contrasts with typical market patterns. The first quarter’s net profit margin of 14.8% was nearly double the postwar average, reflecting the dominance of high-margin technology companies and other factors such as the slow depreciation of AI-related equipment.

Market observers note that while the current earnings surge is impressive, it may not fully reflect underlying operational strength, suggesting that some portion of the reported profits lacks sustainability and may reverse in the future.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.