Goldman Sachs just spotted a problem that’s hiding inside a remarkably good earnings figure.
According to Seeking Alpha, S&P 500 companies apparently posted a blowout Q1 earnings figure, where growth neared 25%. However, Goldman Sachs said the figure was boosted by investment gains at Amazon (AMZN) and Google parent Alphabet (GOOGL).
Take those gains away, and you are arrive at far less impressive number.
Amazon, Alphabet mask broader earnings picture
For Amazon, the bump came from a $16.8 billion pre-tax gain linked to its investment in AI bellwether Anthropic , booked in non-operating income.
That bumped its net income to $30.3 billion, beating Wall Street estimates again by a handsome margin.
For Alphabet, the gain was even bigger, with $37.7 billion in other income, mostly from unrealized gains on non-marketable securities, leading to net income jumping 81% to $62.6 billion and EPS rising 82% to $5.11.
Earnings headlines are a critical gauge for investors to judge whether stock prices are overbought and corporate profits are sustainable.
Amazon and Alphabet can heavily influence the numbers because their massive market caps give them outsized weight in the S&P 500 index.
Essentially, the market might still be growing, but clearly there’s a lot more concentration than the headline suggests.
For perspective, both tech behemoths killed it when they reported their Q1 earnings recently.
Amazon’s Q1 net sales jumped 17% to $181.5 billion. Amazon Web Services sales also surged 28% to $37.6 billion, its fastest growth in 15 quarters.
Similarly, operating income shot up to $23.9 billion, while net income also climbed to $30.3 billion, led by a massive Anthropic investment gain.
Alphabet also showed a ton of strength.
Sales ballooned by 22% to $109.9 billion, Google Search grew 19%, and Google Cloud surged 63% to $20 billion. Cloud backlog also doubled to over $460 billion, underscoring the relentless appetite for AI.
Nevertheless, even though those two businesses performed well in Q1, Goldman’s point is that their strength is masking a far less explosive earnings picture across the broader market.
Amazon stock returns vs. Alphabet
- In the 1-month period, Amazon returned 26.85%, compared with 32.6% for Alphabet.
- In the 3-month period, Amazon returned 28.93%, compared with 23.36% for Alphabet.
- Year to date, Amazon returned 17.48%, compared with 27.4% for Alphabet.
- In the 1-year period, Amazon returned 43.70%, compared with 144.67% for Alphabet.
- In the 3-year period, Amazon returned 156.68%, compared with 280.11% for Alphabet.
- In the 5-year period, Amazon returned 64.76%, compared with 243.36% for Alphabet.
Source: Seeking Alpha.
Big Tech carried Q1 earnings
Once again, Big Tech did the bulk of the heavy lifting this earnings season, where Q1 results handily beat estimates.
More AI:
- Micron sits at the center of a red-hot chip rally
- IBM CEO sends blunt message on AI and quantum computing
- Anthropic CEO makes shocking admission about AI
According to FactSet’s May 4, 2026, Earnings Insight report, the S&P 500 blended earnings growth surged to 27.1%, from 15% a week prior, spearheaded by the Magnificent 7 companies.
Consequently, the index is now on track to post its strongest earnings growth numbers since Q4 2021.
Specifically, looking at the Magnificent 7, blended earnings growth shot up to 61%, comfortably above the 22.4% expected at the end of March.
Additionally, according to a new report from J.P. Morgan Asset Management, 85% of S&P 500 companies blew past market expectations.
Goldman Sachs sees a tech-driven earnings distortion
Goldman Sachs feels investors need to look past the headline number on corporate earnings.
On the face of it, S&P 500 Q1 earnings growth looks remarkably strong, at around 25%.
That’s also indicative of a healthier outlook for Corporate America, where investors are already paying premium prices on stocks.
However, Goldman’s research team flags that a meaningful chunk of those gains comes from investment-related activity by two big tech giants, Amazon and Alphabet, rather than from impressive operating performance across the index.
Those two businesses have an outsized influence on the S&P 500, and Goldman describes the effect as a “distortion” in the overall earnings picture.
If we leave out those investment gains, the underlying S&P 500 earnings growth drops to nearly 16%.
That number is solid, but clearly that’s not exactly the same as 25% growth.
So even though the market might still have bottom-line momentum, it is a lot more concentrated than the headline numbers suggest.
What the Magnificent 7 means for the market
The “Magnificent 7” is essentially a shorthand for the seven biggest tech giants dominating the S&P 500 index (by market capitalization).
These big companies collectively account for more than 35% of the index, effectively anchoring the market even when the broader S&P 500 looks relatively uninspiring.
AI has played a critical role over the past couple of years, with Goldman Sachs saying that AI-related investment could potentially drive nearly 40% of S&P 500 EPS growth this year.
- Nvidia: $5.18 trillion.
- Alphabet, Google’s parent: $4.82 trillion.
- Apple: $4.23 trillion.
- Microsoft: $3.13 trillion.
- Amazon: $2.95 trillion.
- Meta Platforms: $1.58 trillion.
- Tesla: $1.46 trillion.
Source: Slickcharts.
Wall Street price targets for Amazon and Google stocks
- JPMorgan raised Amazon to $330 after earnings.
- Goldman Sachs raised Amazon to $325.
- UBS lifted Amazon to $333.
- Piper Sandler raised Amazon to $315.
- JPMorgan raised Alphabet, Google’s parent, to $460.
- Goldman Sachs lifted Alphabet to $450.
Related: Goldman Sachs sets jaw-dropping AMD stock price target after earnings
