Record-breaking earnings season for the U.S. stock market: S&P 500 constituent stocks saw a 45% increase in EPS, with half of that coming from investment gains and one-third from AI infrastructure.

This U.S. earnings season has been dubbed "record-breaking," but the structural problems behind the numbers are raising alarms. According to the latest internal report from Goldman Sachs' sales and trading department, the year-over-year EPS growth rate for S&P 500 constituents in the second quarter reached an astonishing 45%but if we exclude the gains from fair value changes in equity investments held by large tech companies, this figure is nearly halved to 26%. In other words, about half of the "record-breaking" profit growth is attributable to tech giants revaluing their own venture capital portfolios, rather than genuine expansions in operating profits. At the same time, AI infrastructure-related stocks accounted for about one-third of the overall EPS growth for the S&P 500, further highlighting the high concentration of profit growth. For investors holding the index, this means that the earnings backdrop upon which current valuations rest is far more fragile than the surface numbers suggest. The median company's EPS growth rate in the S&P 500 was only 12% in the second quarter, a 33 percentage point difference from the headline figure of 45%, with the gap filled almost entirely by the concentration effects and accounting methods of a few tech giants. Accounting gains prop up half the profits Goldman Sachs analyst Ioannis Blekos pointed out in this week's report that when the estimated gains on equity investments held by large tech firmsknown as "other income"are factored in, the S&P 500's EPS year-over-year growth rate would be 45%; however, once this market value-based accounting income is excluded, the growth rate drops to 26%. The source of this discrepancy lies in the fact that tech giants like Nvidia hold significant equity investments in external companies, and when the stock prices of these invested companies rise, the holding companies can recognize corresponding fair value changes in their profits and losses for the current period. This form of accounting is entirely compliant with accounting standards but essentially reflects rises in asset prices in financial statements and is unrelated to the profitability of the core business operations. This means that a significant portion of the frequently cited "record-breaking" profit growth does not stem from sales of products, service revenues, or improvements in operational efficiency, but rather from increases in the stock market itselfan inherently self-reinforcing logic. AI infrastructure themes dominate growth, with significant concentration risk Aside from accounting gains, another major pillar of profit growth is likewise highly concentrated. According to the same Goldman Sachs report, AI infrastructure-related stocks contributed about one-third to the EPS growth of the S&P 500 in the second quarter. The underlying logic of this theme forms a closed loop: large-scale cloud computing companies purchase chips from Nvidia, Nvidia invests part of the funds into companies that buy its chips, and all parties raise each other's valuations. This capital cycle can temporarily amplify accounting gains, but its sustainability heavily relies on the continuation of AI investment enthusiasm and sustained rises in related asset prices. In contrast, the median company's EPS growth rate in the S&P 500 was merely 12% in the second quarter. The 33-percentage-point gulf between the headline numbers and the median clearly exposes the structure of the current profit growth: a handful of tech giants push the apparent profit growth of the overall index far beyond the actual performance of most constituent stocks through concentration effects and specialized accounting items. Options market sentiment reaches historic extremes While the earnings data raises structural questions, market sentiment indicators are also signaling unusual conditions. Goldman Sachs' U.S. derivatives desk analyst Ismail Abbas noted that the daily trading volume of call options on the S&P 500 has exceeded 4 million contracts, setting a recordhigher not only than any point earlier this year but also surpassing the peaks seen during the retail frenzy of 2021. Price behavior is similarly abnormal. Abbas observed that the actual daily volatility of the index reached 179 basis points, while the implied volatility priced in a range of only 40 basis points, meaning the actual volatility exceeded the priced range by more than four times, with the direction decidedly upward. Goldman data indicates that the last occurrence of a similar trend was in December 2016. It is noteworthy that despite these extreme readings, Goldmans trading desk rated the overall activity level of the day at only 4 out of 10. This suggests that behind the record-breaking call option transaction volume and the fourfold overshoot of expected upward movement, market participants have not shown significant levels of anxiety or hedging willingnessthis calmness itself may be the most concerning characteristic of the current market state. This article is reprinted from "Wall Street Journal," author: Zhao Ying; GMTEight editor: Chen Siyu.