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The more money companies spend on AI, the more important one question becomes:
Where are the profits?
Our latest research reveals another problem with the AI boom: reported earnings growth is lower than it appears.
Unrealized investment gains, fueled by soaring AI valuations, make profits appear stronger without any improvement in the underlying business.
Figure 1: Earnings Net of Hidden Interest Expense & Unrealized Gains: S&P 500: 2019-TTM
Sources: New Constructs, LLC and company filings
* S&P 500 data includes TTM data for companies in the S&P 500 at the end of each period.
What happens when those valuations stop rising?
In addition, the cost of off-balance sheet debt is conveniently kept off the income statement. Adjusting for both reveals S&P 500 earnings are 20% lower than reported.
We’re combining our Monthly Live Podcast and Earnings Watch Party for a special look at the risks and opportunities facing investors.
We’ll kick things off with a review of our latest research exposing hidden costs and inflated earnings. Then, we’ll turn to the latest earnings from Cisco (CSCO), Applied Materials (AMAT), Nebius (NBIS), CoreWeave (CRWV), and Take-Two Interactive (TTWO).
From the enormous capital requirements of AI infrastructure to the expectations surrounding networking, semiconductors, and gaming, we’ll look past the headlines to determine which stocks offer Attractive Risk/Reward.
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This article was originally published on November 12, 2026.
Disclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, style, or theme.
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