Waiter, there’s a P in my E

Acadian

Article

5 Pages

Acadian Asset Management argues that recent S&P 500 earnings growth may overstate the true strength of corporate profits because accounting rules now include unrealized gains on equity holdings. The paper suggests AI-driven private market valuations are inflating reported earnings, potentially creating a feedback loop where higher stock prices boost earnings, which in turn help justify even higher valuations.

Key Takeaways

Unrealized gains inflate: Unrealized gains from just Alphabet, Amazon, and Nvidia added $69B to S&P 500 Q1 2026 earnings, reducing annual earnings growth from 28% to roughly 16% when excluded.
Amazon's AI boost: Amazon reported $30.3B in Q1 2026 net income, including $16.8B of pre-tax gains tied to its investment in Anthropic.
Accounting changed: The S&P 500 trades at a trailing P/E of about 27, while new accounting rules may blur the line between operating profits and mark-to-market investment gains.

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