Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Friday, August 28, 2026

AI Summary. US pre-tax corporate profits reached an annualised $4.8tn, or 18% of national income, the highest share since the aftermath of World War II, according to Bureau of Economic Analysis data. Employees' share from wages and benefits fell to 60%, the lowest since the 1950s, with the decline gaining pace in recent years.

Myles McCormick Financial Times
Date Posted:
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Corporate profits have risen to 18% of national income, their highest share since 1947, while labor’s share has fallen to 60%, a low not seen since the 1950s. The decline in labor’s share has accelerated over the past year.

Are corporate profits taking a record share of national income from workers?

Core argument: US pre-tax corporate profits reached an annualised $4.8tn in the second quarter, or 18% of national income, the highest share since the aftermath of the second world war, according to Bureau of Economic Analysis data.

Pre-tax earnings hit an annualised $4.8tn in the second quarter, or 18% of national income, according to Bureau of Economic Analysis data, the highest share since the aftermath of the second world war. Employees’ share from wages and benefits fell to 60%, the lowest level since the 1950s. “Regardless of what measure you look at, workers, in terms of employee compensation, have been receiving an increasingly small share of national income over time,” said Abiel Reinhart, an economist at JPMorgan. The decline in labour’s share of income has gained pace in the past five years and especially over the past 12 months.

Takeaways by Macro Roundup® AI

  1. US pre-tax corporate profits reached an annualised $4.8tn in the second quarter, or 18% of national income, the highest share since the aftermath of the second world war, according to Bureau of Economic Analysis data.
  2. Employees' share of national income from wages and benefits fell to 60%, the lowest level since the 1950s, with the decline gaining pace over the past five years and especially the past 12 months.
  3. Abiel Reinhart, an economist at JPMorgan, said that regardless of the measure used, workers have been receiving an increasingly small share of national income over time.

Related Articles:

  • The Post‑COVID Decline in the Labor Share — The share of US national income paid to workers fell 1.6 percentage points below its pre-pandemic level, reaching a post-war low. The authors find this decline stems mainly from changes within industries rather than shifts in activity across sectors, following cyclical patterns seen in earlier recessions.
  • Are US Corporate Profit Margins Too High? — US after-tax non-financial corporate profit margins remain elevated by historical standards, estimated at 7.6% versus a post-1949 high of 8.2%, while employee pay as a share of non-financial corporate gross value added has fallen from 66% to 56%. One argument holds that subdued demographic growth leads companies to prioritize maximizing margins over expanding capacity.
  • Why the Labor Share Keeps Falling: Taxes! — The measured corporate labor share fell from 63% in 1978 to 58% in 2017, but the authors estimate that tax-driven reclassification of wages as S corporation profit and the shift of high-labor-share firms into partnerships account for about 1.6 percentage points, roughly a third of the decline.

AI Summary. US productivity has grown about 2.2% annually since mid-2022, faster than its 2010s pace, though the timing points to pandemic-era increases in labor market churn and business formation rather than artificial intelligence as the initial cause. A sustained 1.5%-to-2.2% acceleration would be substantial but not unprecedented.

Chad Syverson Economic Innovation Group
Date Posted:
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Syverson is skeptical that AI initiated the rise in productivity growth that began in 2023. The acceleration began while AI investment was small, and pandemic-era labor market churn and business dynamism match the acceleration’s start.

Is artificial intelligence behind the recent pickup in productivity growth?

Core argument: Productivity has grown about 2.2% annually since mid-2022, a faster trajectory than the 2010s, though the timing leans against AI being the sole initial cause of the acceleration.

Productivity from mid-2022 on has maintained a faster-than-2010s trajectory involving annual growth of about 2.2%. Could this acceleration be due to AI? Perhaps. The timing leans against AI being the sole initial cause. Additionally, there were well-documented increases in economic dynamism (labor market churn and business formation) during the pandemic emergence whose timing matches the acceleration’s start. Regardless of AI’s current effect, the longer the aggregate productivity acceleration continues, the more plausible it is that AI is an important driver. As for the magnitude, a sustained increase from 1.5 to 2.2% annual productivity growth would be substantial (after a decade, GDP per capita would be 7% higher than otherwise), but hardly unprecedented. The 1995–2004 productivity boom saw annual productivity growth of nearly 3% per year, and other past general-purpose-technology-related productivity boosts saw labor productivity growth in excess of 2.5% for a decade or longer.

Takeaways by Macro Roundup® AI

  1. Productivity has grown about 2.2% annually since mid-2022, a faster trajectory than the 2010s, though the timing leans against AI being the sole initial cause of the acceleration.
  2. Documented pandemic-era increases in economic dynamism, including labor market churn and business formation, match the timing of the productivity acceleration's start.
  3. A sustained rise from 1.5% to 2.2% annual productivity growth would leave GDP per capita 7% higher after a decade, yet falls short of the 1995–2004 boom's nearly 3% annual pace.

Related Articles:

  • AI and Productivity — The recent pickup in US labor productivity appears driven by higher utilization of existing capital—running factories, server racks, and hotel rooms harder—rather than by firm-level efficiency gains from AI. Adoption remains too thin and the cross-sectional evidence too weak to conclude that AI-driven productivity gains are already widespread.
  • Google’s AI & Economy ATLAS v1.0: Mapping Gemini Usage in the Economy — Google's ATLAS data show workplace AI use spans over 68% of occupations representing above 88% of US employment, but depth is shallow: AI is used for only 21% of tasks in the median occupation with any use, mostly collaborative rather than automating. Over 86% of conversational AI interactions occur outside work.
  • Writing Code vs. Shipping Code: Productivity Effects Across Generations of AI Coding Tools — The authors estimate that AI coding tools raise developers' task-level productivity by about 40% with autocomplete, 140% including synchronous agents, and 180% with asynchronous agents, with larger effects for less active developers. Gains attenuate up the production chain: synchronous agents raise lines of code 741% and pull requests 65% but releases only 20%.

AI Summary. For three decades the 10-year Treasury yield fell almost entirely on the handful of days around Federal Reserve meetings; since 2022 it has risen roughly 4 percentage points with almost none of that on Fed days. Rate moves were largely priced in advance, with inflation and jobs surprises, Treasury supply and a rising term premium driving the increase.

Torsten Sløk Apollo
Date Posted:

Between 1989 and 2022, nearly all moves in the 10-year yield came on FOMC days. Its cumulative 400bp rise since August 2022 was due to inter-meeting increases. Fed moves were predictable from data releases, which likely also carried news about the long end.

Does the Fed still drive long-term interest rates?

Core argument: The 10-year Treasury yield has risen roughly four percentage points since 2022, but almost none of that increase occurred on Federal Reserve meeting days, breaking a 30-year pattern in which the yield fell almost entirely around FOMC meetings.

For 30 years, the 10-year Treasury yield fell almost entirely on the handful of days around Fed meetings, and did essentially nothing the rest of the time. That stopped in 2022 after the Fed began to raise interest rates. The 10-year has since risen roughly four percentage points, but almost none of that came on Fed days. The reason is that each hike was largely priced by the time the Committee met, so the FOMC announcement and press conference carried little news for the long end, and the move higher instead came from higher-than-expected CPI prints, stronger payrolls, increasing Treasury supply and a rising term premium, none of which sit on the FOMC calendar.

Takeaways by Macro Roundup® AI

  1. The 10-year Treasury yield has risen roughly four percentage points since 2022, but almost none of that increase occurred on Federal Reserve meeting days, breaking a 30-year pattern in which the yield fell almost entirely around FOMC meetings.
  2. Each Fed hike was largely priced by the time the Committee met, leaving the FOMC announcement and press conference with little news for the long end.
  3. Higher-than-expected CPI prints, stronger payrolls, increasing Treasury supply and a rising term premium drove the 10-year yield higher, none of which sit on the FOMC calendar.

Related Articles:

  • The Fed and the Secular Decline in Interest Rates — The authors find that the long-run decline in US Treasury yields since 1980 is fully accounted for by movements in a narrow window around Federal Reserve policy meetings, while yield changes outside that window prove transitory. They suggest the Federal Reserve conveys information to markets about the long-run level of interest rates.
  • What Are US Treasury Markets Really Telling Us? Part I — Comparing US Treasury yields to AAA corporate bonds combined with credit default swap insurance creates a synthetic Treasury, and the resulting spread — the convenience yield investors give up for safety and liquidity — has disappeared, suggesting investors are indifferent between the two on safety and liquidity. The author argues this is bad news for US taxpayers.
  • America’s Risky Debt: What Markets See That Policymakers Don’t — Two market-based measures suggest the safety premium investors pay to hold US Treasuries has compressed toward zero and at times reversed: the spread between top-rated corporate bonds and Treasuries after stripping out default risk, and the gap between currency-hedged foreign G10 government yields and Treasury yields at the same maturity, where longer-maturity comparisons now favor foreign bonds.

AI Summary. Goods prices have fallen in China since the pandemic while rising in developed markets, driving the inflation-adjusted yuan exchange rate sharply lower and increasing China's competitiveness. Goldman Sachs economists estimate China's price discount versus foreign peers at 32% in electric vehicles, 38% in refrigerators and 53% in shoes.

Greg Ip Wall Street Journal
Date Posted:

A GS analysis shows that Chinese manufacturers’ costs are 32% lower than those of their competitors, reflecting an artificially depressed yuan and price increases abroad due to supply chain disruptions and fiscal stimulus.

Have falling Chinese goods prices made the yuan undervalued?

Core argument: Goldman Sachs economists Kamakshya Trivedi and Hui Shan find China's price discount versus foreign peers is 32% in electric vehicles, 38% in refrigerators and 53% in shoes, gaps that in theory should not persist if the yuan were fairly valued.

Goldman Sachs economists Kamakshya Trivedi and Hui Shan show goods prices have fallen in China since the pandemic while rising in developed markets because of stimulus and supply-chain disruptions. This means the inflation-adjusted yuan exchange rate has plummeted. This has increased China’s competitiveness. Goldman compared costs experienced by manufacturers in China, such as New Balance in shoes and Tesla in electric vehicles, with their costs elsewhere, and prices of Chinese companies, such as appliance manufacturer Haier, to foreign peers such as Siemens. China’s price discount is 32% in electric vehicles, 38% in refrigerators and 53% in shoes. In theory, such gaps should not persist if the yuan is fairly valued.

Takeaways by Macro Roundup® AI

  1. Goldman Sachs economists Kamakshya Trivedi and Hui Shan find China's price discount versus foreign peers is 32% in electric vehicles, 38% in refrigerators and 53% in shoes, gaps that in theory should not persist if the yuan were fairly valued.
  2. Goods prices have fallen in China since the pandemic while rising in developed markets on stimulus and supply-chain disruptions, sending the inflation-adjusted yuan exchange rate sharply lower and increasing China's competitiveness, according to Goldman Sachs.
  3. Goldman Sachs compared manufacturer costs in China with costs elsewhere for firms including New Balance in shoes and Tesla in electric vehicles, and prices of Chinese companies such as Haier against foreign peers such as Siemens.

Related Articles:

  • The World Should Not Ignore China’s Undervalued Currency — China's reported current account surplus of about 4% of GDP is roughly 3 percentage points above the International Monetary Fund's estimated norm, implying a currency undervaluation of about 20%. Adjusting for surging gold imports and a misreported investment income deficit would lift the surplus to about 6% of GDP and the estimated undervaluation to 30–35%.
  • Global Views: Bending, Not Breaking — China's export-oriented goods sector is supporting GDP growth of 5% year-on-year, with growth forecast at 4.7% for 2026, though the economy remains highly unbalanced. The authors expect strong production and sluggish demand to push the current account surplus further to record levels as a share of global output, leaving the yuan undervalued by more than 20% against the dollar.
  • Who Will Win The War Of Neo-Mercantilists? — China's manufacturing export surplus is around 2% of world GDP, roughly twice the largest surplus Japan ever ran, while domestic demand has stalled. Unexplained negative net income of about $125bn on its $4tn in net foreign assets, versus an expected $100bn surplus, supports the argument that the renminbi is about 30% undervalued.

AI Summary. Goldman Sachs estimates Persian Gulf crude and oil product exports have recovered to about 15–16m barrels a day, roughly two-thirds of pre-war levels and above a trough of 5–6m barrels a day, limiting the Iran war's impact on global crude prices. Transits through the Strait of Hormuz are likely close to US officials' estimates of 8–10m barrels a day.

Yongchang Chin Bloomberg
Date Posted:

A GS analysis finds oil exports from the Gulf have risen to 15–16mm bpd, ~ 2/3 of pre-war levels; 8–10mm bpd – about half of pre-war levels – transit through Hormuz.

Have Gulf oil exports recovered enough to limit crude price impact?

Core argument: Persian Gulf crude and oil product exports have recovered to 15–16 million barrels a day, about two-thirds of pre-war levels, limiting the Iran war's impact on global crude prices, according to Goldman Sachs.

Oil exports from the Persian Gulf have recovered to around two-thirds of pre-war levels, limiting the Iran war’s impact on global crude prices, according to Goldman Sachs. Total exports of crude and oil products from the region have risen to 15 million to 16 million barrels a day, helped by higher crossings through the Strait of Hormuz, Goldman analysts including Daan Struyven and Yulia Zhestkova Grigsby said in a note. That’s still 7 to 8 million barrels below pre-conflict levels, but well above a trough of 5 million to 6 million barrels a day in March. Oil transits through the Strait of Hormuz alone are likely close to US officials’ 8 million to 10 million barrel a day estimates, the analysts said.

Takeaways by Macro Roundup® AI

  1. Persian Gulf crude and oil product exports have recovered to 15–16 million barrels a day, about two-thirds of pre-war levels, limiting the Iran war's impact on global crude prices, according to Goldman Sachs.
  2. Gulf exports remain 7–8 million barrels a day below pre-conflict levels but well above a trough of 5–6 million barrels a day in March, Goldman analysts including Daan Struyven and Yulia Zhestkova Grigsby said.
  3. Oil transits through the Strait of Hormuz are likely close to US officials' estimates of 8–10 million barrels a day, with higher crossings helping lift regional exports, the Goldman analysts said.

Related Articles:

  • Soaring Diesel Prices Rip Across The US Economy — US diesel pump prices reached $5.47 a gallon, approaching a nominal record of $5.82 ($6.64 adjusted for inflation), after rising 8% in a month as wars in the Middle East and Europe constrain production and global supplies. The gap between diesel and crude oil prices has hit a record high.
  • Fighting Words: The Energy Transition in 2026 — Estimates based on primary energy overstate how much electricity is needed to replace oil in passenger cars, since electric motors convert 80%-90% of electricity into motion versus about 18% for gasoline cars. Measuring useful final energy net of waste heat avoids this "primary energy fallacy": the US consumed 45 exajoules of useful final energy versus 95 exajoules of primary energy.
  • Choking Iran’s Economy Is the Least Bad Way to End the War — Iran's economy is on track for its largest annual contraction since the mid-1980s, with inflation above 50% — the highest in nearly 70 years of records — and food and other necessities costing double a year earlier. Its currency has fallen to a record low of about 1.85m rials per dollar on the black market.

Monday, August 31, 2026

AI Summary. The dollar accounts for 59% of cross-border payments messaged through SWIFT, far ahead of the euro's 14%, and its share of foreign exchange turnover has risen gradually to about 90% of the 200% total since 2010. Official holdings of U.S. Treasuries have leveled off near $4tn while foreign private holdings rose from $1tn to over $5tn.

Gordon Liao, Eswar Prasad, Tony Zhang Federal Reserve Bank of Kansas City
Date Posted:

Dollar dominance in the world economy is not in danger. The dollar remains the currency for the vast majority of FX transactions, and dollar bond holdings by foreign private sector investors rose from $1T in 2010 to over $5T by early 2026.

Is the dollar holding its dominant role in global payments and reserves?

Core argument: The dollar accounts for 59% of the value of cross-border payments messaged through SWIFT, with the euro a distant second at 14%.

The dollar now accounts for 59% of the value of all cross-border payments for which messaging is done through SWIFT. The euro’s share, at 14%, is a distant second. The dollar’s share of turnover in FX markets has risen gradually to around 90% (out of a total of 200%, as each FX transaction involves two currencies) since 2010, indicating that it remains the counterparty currency for the vast majority of FX transactions (Figure 2, Panel B). Official holdings of U.S.Treasuries (including by sovereign wealth funds) have leveled off at around $4 trillion over the last 15 years while holdings by foreign private sector investors have increased steadily, from $1 trillion in 2010 to over $5 trillion by early 2026 (Figure 9, Panels A and B). The international monetary system seems to be fragmenting [at] the second tier (which, in our view, includes all currencies other than the dollar), evident in measures of currency concentration excluding the United States, [creating] a balanced distribution across a range of reserve currencies (Figure 11).

Takeaways by Macro Roundup® AI

  1. The dollar accounts for 59% of the value of cross-border payments messaged through SWIFT, with the euro a distant second at 14%.
  2. The dollar's share of FX market turnover has risen gradually since 2010 to around 90% out of a total of 200%, as each transaction involves two currencies, leaving it the counterparty currency for most FX trades.
  3. Official holdings of U.S. Treasuries, including by sovereign wealth funds, have leveled off at around $4 trillion over the last 15 years, while foreign private sector holdings rose from $1 trillion in 2010 to over $5 trillion by early 2026.

Related Articles:

  • Top Dollar — Foreign holdings of U.S. financial assets exceed American holdings abroad, making the United States a net debtor whose liabilities are denominated in dollars while its foreign assets are largely in other currencies. U.S. foreign liabilities grew from $30tn to over $51tn while U.S. foreign assets grew from $24tn to $33tn, tripling the net debtor position from $6tn.
  • US Monetary Spillovers, Foreign Exchange, and Gold Reserves at Times of Geopolitical Fragmentation — The authors estimate that surprises in US monetary policy spill over into exchange rates, with dollar-denominated reserves substantially mitigating depreciation pressures while non-dollar and gold reserves are associated with smaller effects. Aggregate reserve size alone does not capture external resilience; currency composition and access to dollar liquidity facilities are empirically relevant.
  • How Overvalued is the Euro? — The euro has traded at a premium against the dollar relative to the Euro zone–US two-year forward interest rate differential since reciprocal tariffs were introduced, a decoupling that is milder for the British pound and absent for the Australian and Canadian dollars. The author argues that US and Chinese efforts to weaken their currencies will worsen euro overvaluation.

AI Summary. The US 10-year Treasury yield topped 4.75%, a 19-month high, as rising oil prices bolstered expectations that the Federal Reserve will raise interest rates. The 30-year yield climbed five basis points to near 5.26% but stayed well below its multiyear high, having retreated after the Treasury Department said it would increase buybacks of long-dated debt.

Elizabeth Stanton Bloomberg
Date Posted:

The US 10-year yield hit 4.75% for the first time since January 2025. The 30-year yield also climbed, rising 5 bps to ~5.26%.

Are rising oil prices pushing Treasury yields to new highs?

Core argument: The US 10-year Treasury yield topped 4.75% for the first time since January 2025, as rising oil prices bolstered expectations that the Federal Reserve will hike interest rates.

The US 10-year yield topped 4.75% for the first time since January 2025 as rising oil prices bolstered expectations that the Federal Reserve will hike interest rates. While 30-year yields also climbed Monday, rising five basis points to near 5.26%, they remained well below their mid-August multiyear highs, having retreated after the Treasury Department said earlier this month it would increase its buybacks of debt in the sector to bolster its market value.

Takeaways by Macro Roundup® AI

  1. The US 10-year Treasury yield topped 4.75% for the first time since January 2025, as rising oil prices bolstered expectations that the Federal Reserve will hike interest rates.
  2. The 30-year Treasury yield rose five basis points to near 5.26%, remaining well below its mid-August multiyear highs.
  3. Thirty-year yields retreated after the Treasury Department said it would increase buybacks of debt in that sector to bolster its market value.

Related Articles:

  • America’s Risky Debt: What Markets See That Policymakers Don’t — Two market-based measures suggest the safety premium investors pay to hold US Treasuries has compressed toward zero and at times reversed: the spread between top-rated corporate bonds and Treasuries after stripping out default risk, and the gap between currency-hedged foreign G10 government yields and Treasury yields at the same maturity, where longer-maturity comparisons now favor foreign bonds.
  • Let the Bond Market Speak — The long-term Treasury yield is the most important price in the world, and markets aggregate information no committee possesses. The author argues the Treasury's larger buyback operations were not justified as liquidity support, since trading was orderly, volatility contained, and there were no failed auctions or forced unwinds indicating dysfunction.
  • Don’t Draw The Wrong Conclusion From Treasury Yields — Ten-year real yields equal the average expected overnight rate over the next decade plus a term premium, and fiscal credibility or debt sustainability concerns would show up as a higher term premium. With the term premium and inflation expectations contained, the increase in bond yields reflects higher expected long-term overnight rates.

AI Summary. An investment argument holds that long-term interest rates fall under either artificial intelligence outcome: success would generate trillions in technology revenue and prove deflationary, while failure would burst the bubble, cut the Nasdaq in half, and send investors from stocks into Treasury bonds.

Torsten Sløk Apollo
Date Posted:

Sløk argues that the next six months will see either a large increase in revenue associated with AI or the start of a major market correction. He argues either scenario will bring long rates down.

Do long-term rates fall whether or not AI succeeds?

Core argument: If AI fails to deliver, the argument runs, the bubble bursts and the Nasdaq falls 50% as investors rotate out of equities into Treasuries, pushing long rates dramatically lower.

If AI succeeds and tech companies generate trillions in revenue, AI will be massively deflationary and push rates lower. If AI does not work out, the bubble bursts and the Nasdaq is down 50% as investors rotate out of equities into Treasuries and long rates fall dramatically. Over the next six months, the market will make up its mind about which AI scenario is playing out. The narrative in rates today is all about inflation and fiscal problems. But the narrative going into 2027 is going to be all about either the success or failure of AI. And in both scenarios, long rates are going to be lower.

Takeaways by Macro Roundup® AI

  1. If AI fails to deliver, the argument runs, the bubble bursts and the Nasdaq falls 50% as investors rotate out of equities into Treasuries, pushing long rates dramatically lower.
  2. If AI succeeds and tech companies generate trillions in revenue, the argument runs, AI proves massively deflationary and pushes rates lower, leaving long rates lower in both scenarios.
  3. The rates narrative is expected to shift from inflation and fiscal problems to the success or failure of AI going into 2027, with the market making up its mind over the next six months.

Related Articles:

  • The Summer I Turned Pretty — A warning sign in a boom cycle is when companies closest to final demand weaken while capital spending beneficiaries keep thriving, as when telecom operators' shares rolled over while communications equipment stocks kept rising. Semiconductor stock prices and free cash flow are soaring while large cloud providers' shares stagnate and their free cash flow plummets.
  • The Buyers of AI Are Still Waiting for the Payoff — Companies in the S&P 500 outside the technology sector are spending heavily on artificial intelligence without showing gains in profit margins, with health care margins halved since 2015, consumer staples near 6%, and consumer discretionary near 8%. So far the artificial intelligence capital spending boom appears in sellers' margins rather than buyers'.
  • The Market Is Asking Questions — Markets are weighing whether the trillions committed upfront to AI data centers, chips, and power will generate returns above the cost of capital before those assets depreciate. With the buildout increasingly funded by debt rather than internal cash flow and borrowing spreads widening, financing costs could rise until new data-center spending no longer clears its return hurdle.

AI Summary. Large technology companies booked more than $160bn in gains last quarter from stakes in other artificial intelligence firms, with much of the profit increase at Alphabet and Amazon coming from "other income" on holdings such as SpaceX and Anthropic rather than new business lines or cash generation. Analysts question whether reported growth reflects underlying demand.

Ramsay Hodgson and Emily Herbert Financial Times
Date Posted:

In Q2, Alphabet, Amazon, Nvidia and Microsoft reported $160B in pre-tax profit from valuation gains on AI-related equity stakes alone.

Are paper gains on AI stakes inflating big tech profits?

Core argument: Big Tech companies booked more than $160bn last quarter from gains on investments in other AI companies, flattering earnings and raising concerns that paper gains are overstating the strength of the AI boom.

Big tech giants booked a more than $160bn windfall last quarter from investments in other AI companies, flattering their earnings and raising concerns that paper gains are overstating the strength of the AI boom. In the most recent round of earnings reports, pre-tax profits reached a record at several of the Big Tech “hyperscalers”. But the main source of these increases at Alphabet and Amazon was ‘other income’ from gains on SpaceX and Anthropic, rather than new business lines or fresh cash generation. “A couple of years ago investors started to ask about the circularity of [Big Tech] revenues,” said Ben Snider, chief US equities strategist at Goldman Sachs. The profit boost from AI investments now “raises the question of whether the growth these companies are reporting is based on underlying demand or if it is misleading in some way,” he added.

Takeaways by Macro Roundup® AI

  1. Big Tech companies booked more than $160bn last quarter from gains on investments in other AI companies, flattering earnings and raising concerns that paper gains are overstating the strength of the AI boom.
  2. Pre-tax profits reached a record at several Big Tech hyperscalers, but the main source of the increases at Alphabet and Amazon was "other income" from gains on SpaceX and Anthropic rather than new business lines or fresh cash generation.
  3. Ben Snider, chief US equities strategist at Goldman Sachs, said the profit boost from AI investments raises the question of whether the growth these companies report is based on underlying demand or is misleading in some way.

Related Articles:

  • The Summer I Turned Pretty — A warning sign in a boom cycle is when companies closest to final demand weaken while capital spending beneficiaries keep thriving, as when telecom operators' shares rolled over while communications equipment stocks kept rising. Semiconductor stock prices and free cash flow are soaring while large cloud providers' shares stagnate and their free cash flow plummets.
  • Opportunities and Expectations: The Present Value of Growth Opportunities in Valuation — A stock's value can be split into steady-state value from current operations and the "present value of growth opportunities" from future value-creating investments, which has averaged 35% of the S&P 500's price historically. Lower shares of price attributed to growth opportunities have been associated with higher subsequent returns, most clearly at the extremes.
  • Are US Corporate Profit Margins Too High? — US after-tax non-financial corporate profit margins remain elevated by historical standards, estimated at 7.6% versus a post-1949 high of 8.2%, while employee pay as a share of non-financial corporate gross value added has fallen from 66% to 56%. One argument holds that subdued demographic growth leads companies to prioritize maximizing margins over expanding capacity.

AI Summary. S&P 500 per-share earnings rose 53% year over year in the latest quarter and sales rose nearly 16%, with investment gains at Amazon and Alphabet adding to the surge. Companies raising profit guidance outnumbered those lowering it by nearly 2-to-1, a reversal from a year earlier.

Sarah Nassauer and Theo Francis Wall Street Journal
Date Posted:

The S&P 500’s earnings per share rose 53% y/y in Q2 (34.5% excluding earnings from investment gains at Amazon and Alphabet), while revenue increased 15.6%.

Are corporate profits surging and pointing to further gains ahead?

Core argument: S&P 500 per-share earnings rose 53% in the second quarter from a year earlier and sales rose nearly 16%, with investment gains at Amazon and Alphabet adding to the surge.

Across S&P 500 companies, per-share earnings soared 53% in the second quarter from a year earlier, while sales rose nearly 16%. Investment gains from tech giants Amazon and Alphabet added fuel to the big earnings surge. Even without those gains, S&P 500 earnings rose the most since fall 2021. By a nearly 2-to-1 margin, more companies raised their profit guidance for the current quarter than lowered it—a turnaround from a year ago, when more were lowering their outlooks. Tariff refunds are providing a big, temporary tailwind. They are likely to account for more than 4% of third-quarter economic growth—or add about 0.2 percentage point to the Atlanta Fed’s growth forecast of between 4% and 5%—according to a mid-August estimate from Apollo.

Takeaways by Macro Roundup® AI

  1. S&P 500 per-share earnings rose 53% in the second quarter from a year earlier and sales rose nearly 16%, with investment gains at Amazon and Alphabet adding to the surge.
  2. Excluding investment gains at Amazon and Alphabet, S&P 500 earnings rose the most since fall 2021, and companies raised profit guidance for the current quarter over lowering it by a nearly 2-to-1 margin, reversing the prior year's pattern.
  3. Apollo estimated in mid-August that tariff refunds would account for more than 4% of third-quarter economic growth, adding about 0.2 percentage point to the Atlanta Fed's growth forecast of between 4% and 5%.

Related Articles:

  • Welcoming Everyone Else to the Earnings Party — Free cash flow at large technology companies is deteriorating rapidly as data-center spending absorbs it, even as the rest of the corporate sector generates more cash. Across the S&P 500, earnings per share have risen much faster than free cash flow over a protracted stretch, raising questions about how quickly artificial-intelligence capital spending will turn into profits.
  • Corporate America Is Minting Money—and Not Just in Tech and Finance — Earnings per share for S&P 500 companies are estimated to grow more than 13% year over year for a sixth straight quarter, with sales growth and improving margins accompanying the gains. Share buybacks are contributing less to earnings growth than in many quarters, with the gap between earnings-per-share and net income growth just under 1 percentage point.
  • Big Tech Profits Get $160bn Boost From Gains On Stakes Other AI Companies — Large technology companies booked more than $160bn in gains last quarter from stakes in other artificial intelligence firms, with much of the profit increase at Alphabet and Amazon coming from "other income" on holdings such as SpaceX and Anthropic rather than new business lines or cash generation. Analysts question whether reported growth reflects underlying demand.