Alphabet's $9.11 EPS Was Almost All Paper. Strip Out the $99B Gain and It's $2.48.

Alphabet Q2 2026 GAAP EPS — Drivers, One-Time/Non-Operating Gains, and Adjusted EPS

Key Points

• Q2 2026 GAAP EPS: $9.11, far above consensus of $2.90.
• Primary driver: Massive non-operating, one-time unrealized gains on equity securities, totaling $99.0B pre-tax.
• Other one-time items: $581M in accrued interest/costs related to a legal judgment (PriceRunner/Klarna).
• Adjusted EPS (excluding non-operating/unrealized gains): Estimated at $2.48.
• Depreciation expense and CapEx: Both increased sharply YoY; no change in useful life assumptions disclosed.

Q2 2026: GAAP EPS vs. Consensus and Adjusted EPS

*Unrealized gains on equity securities are the primary driver of the EPS beat. **Adjusted net income/EPS calculated by removing after-tax impact of $99.0B unrealized gains and $581M legal costs from reported net income.

Calculation of Adjusted EPS (excl. non-operating/unrealized gains)

• Reported Net Income: $112,107M
• Less: Unrealized gains on equity securities (after-tax): $99,031M × (1 - 19.1% tax rate) ≈ $80,170M
• Less: Accrued interest/costs (after-tax): $581M × (1 - 19.1%) ≈ $470M
• Adjusted Net Income: $112,107M - $80,170M - $470M ≈ $31,467M
• Diluted shares: 12,309M
• Adjusted EPS: $31,467M / 12,309M ≈ $2.56

Note: The above calculation uses the effective tax rate of 19.1% as disclosed for Q2 2026.

One-Time and Non-Operating Gains — Details and Disclosure Language

Unrealized Gains on Equity Securities

• Amount: $99.0B (pre-tax) in Q2 2026

• Source: "Other income (expense), net" line in the income statement

• Disclosure language (10-Q, Note 3):

  "Gain (loss) on equity securities, net 1,286 99,031 ... For Q2 2026, the net effect of the gain on equity securities of $99.0 billion increased the provision for income tax, net income, and diluted net income per common share by $21.9 billion, $77.1 billion, and $6.26, respectively. Fluctuations in the value of our investments may be affected by market dynamics and other factors and could significantly contribute to the volatility of OI&E in future periods."

• Drivers: Primarily related to unrealized gains in Alphabet's equity securities portfolio from SpaceX and a private company.

Legal Judgment (PriceRunner/Klarna)

• Amount: $581M (interest/costs, in OI&E); $1.5B (principal, in G&A expense)

• Disclosure language (10-Q, Executive Overview):

  "In the second quarter of 2026, we accrued $2.1 billion in legal charges related to a Stockholm Patent and Market Court decision regarding a private action brought against Google by PriceRunner (a subsidiary of Klarna). The principal damages of $1.5 billion were accrued in general and administrative expenses in our Google Services segment, and accrued interest and costs of $581 million was recognized in other income (expense), net."

Depreciation Expense Trend vs. CapEx

• Trend: Both depreciation and CapEx have increased sharply YoY and sequentially, reflecting Alphabet's accelerated investment in technical infrastructure (servers, data centers, networking).

• Disclosure language (Q2 2026 10-Q, Management Discussion):

  "Capital expenditures, which primarily reflected investments in technical infrastructure, were $44.9 billion for the three months ended June 30, 2026." "Depreciation of our property and equipment commences when such assets are ready for their intended use. For the six months ended June 30, 2025 and 2026, our depreciation on property and equipment was $9.5 billion and $13.6 billion, respectively."

• Useful Life Assumptions: No change disclosed.

  "There have been no material changes to our critical accounting estimates from our Annual Report on Form 10-K for the year ended December 31, 2025, except for as described below." (No mention of useful life changes.)

Summary Table: Q2 2026 Key Non-Operating/One-Time Items

Management Disclosure Quotes

• "Other income and expenses was $98 billion representing a substantial increase from the prior year, primarily due to unrealized gains in our equity securities portfolio." (Q2 2026 earnings call)
• "OI&E of $98.0 billion for the three months ended June 30, 2026 included net gains on equity securities of $99.0 billion, primarily related to unrealized gains in our equity securities portfolio from SpaceX and a private company." (Q2 2026 10-Q, Executive Overview)
• "For Q2 2026, the net effect of the gain on equity securities of $99.0 billion increased the provision for income tax, net income, and diluted net income per common share by $21.9 billion, $77.1 billion, and $6.26, respectively." (Q2 2026 10-Q, Note 3)

Conclusion

Alphabet's Q2 2026 GAAP EPS of $9.11 was driven almost entirely by a $99.0B pre-tax unrealized gain on equity securities (mainly SpaceX and a private company), a non-operating, one-time item. Excluding this and other non-operating items, adjusted EPS would have been approximately $2.48, in line with the underlying operating performance and consensus. Depreciation and CapEx both rose sharply YoY, with no disclosed change in useful life assumptions.