David Hay — Haymaker Daily: Mean Reversion, Mean Indeed
The earnings-quality counterpart to
Aug-3's "circular financing" charge, now with a number attached. Yes, "
S&P 500 earnings have been spectacular this year" — per ZeroHedge "
the strongest since 1955," the post-WWII interstate-highway peak, when civilian atomic energy "was also just lifting off, promising an era of cheap and nearly limitless power." But the explosion "has enjoyed a
tremendous tailwind from the AI spending frenzy," and the specific mechanism is ownership, not operations: "profits at the big hyperscalers like
Alphabet/Google (GOOG) have been
greatly flattered by gains on share ownership in their largest AI customers and partners" — and "in GOOG's case, approximately
75% of its first-half 2026 profits have come from the
mark-up of its stakes in, primarily, Anthropic and SpaceX." The cross-check is
David Rosenberg's: strip energy and the AI-related sectors and this year's S&P profit increase "would be a much more
pedestrian 4%." The chart lesson follows — "past times of
earnings spikes have been followed by equally dramatic declines," so "at least
some mean reversion is to be realistically expected." The two epigraphs close it: Jamie Dimon on "
this time is different" being "the most dangerous words in the English language," and Irving Fisher, "the star American economist of the 1920s," declaring on
October 15th, 1929 that "
stock prices have reached what looks like a permanently higher plateau." Verdict: "nothing is permanent… other than
constant change and extreme volatility" — and "that applies to
corporate profits as well."
One-line take: a
mostly macro Daily whose only named security,
Alphabet (GOOG/GOOGL), is cited as the exhibit rather than as a call — the specific, quantified version of the accounting charge Haymaker has been building all summer. The structure is a three-step demolition of a bullish fact.
Step 1 — concede the fact. "There is
no question that S&P 500 earnings have been spectacular this year"; per ZeroHedge — "which some deride as the financial equivalent of the
National Enquirer, but we find a frequent source of interesting factoids" — they are "
the strongest since 1955." The 1955 framing is doing quiet work: that peak coincided with the interstate-highway build-out and a civilian-atomic-energy launch "promising an era of cheap and nearly limitless power" — i.e. the last time a technology promised unlimited cheap energy at an earnings peak.
Step 2 — decompose the fact. The earnings explosion "has enjoyed a
tremendous tailwind from the AI spending frenzy," and the flattering is
non-operating: hyperscaler profits are "greatly flattered by
gains on share ownership in their largest AI customers and partners." The number is the news — "in GOOG's case, approximately
75% of its first-half 2026 profits have come from the mark-up of its stakes in, primarily, Anthropic and SpaceX," an escalation from the "almost two-thirds" cited on
Jul-26 and the general "booking enormous gains on those shares, or warrants, as income" of
Aug-3. Note what this makes GOOG's reported profit: largely a
function of the valuations of two private companies — one of which,
SpaceX, Haymaker documented on Aug-3 falling from ~$2.5T to $1.4T. A mark-up is a mark-
down waiting for the next round.
Step 3 — the independent cross-check. "Canada's highest profile economist,
David Rosenberg, calculates that the S&P profits increase this year
exclusive of energy and AI-related sectors would be a much more
pedestrian 4%" — a third-party sector decomposition that lands in the same place as the accounting one, and the direct descendant of the standing earnings-breadth argument.
The conclusion is statistical, not predictive: "a close study of the above chart indicates that past times of
earnings spikes have been followed by equally dramatic declines," and a second ZeroHedge image "would also strongly suggest that
at least some mean reversion is to be realistically expected." Haymaker then pre-empts the only rebuttal: "of course, this time
could be different.
However…
JPMorgan's Jamie Dimon has said those are
the most dangerous words in the English language" — rivalled only by
Irving Fisher's, "publicly, and infamously," on
October 15th, 1929: "
Stock prices have reached what looks like a permanently higher plateau." (Fisher's date is the point — the crash began nine days later.) Closing: "if market history teaches us anything, it's that
nothing is permanent… other than constant change and extreme volatility. As the above charts clearly illustrate,
that applies to corporate profits as well." Read alongside Aug-3: on Price/Sales the index is already more overvalued than in 2000, and this post attacks the denominator's rescue —
the "E" holding the P/E together is substantially a mark-to-market gain on private stakes. No rating, price or portfolio action is attached to GOOG.
1. Stocks & names mentioned
| Ticker | Name | Research | View | What he said | At |
|---|
| GOOGL | Alphabet (Google, cited as GOOG) | QT · SA · STK · FA | Negative | The named exhibit for the earnings-quality charge, and the sharpest number Haymaker has published on it: "profits at the big hyperscalers like Alphabet/Google (GOOG) have been greatly flattered by gains on share ownership in their largest AI customers and partners. In GOOG's case, approximately 75% of its first-half 2026 profits have come from the mark-up of its stakes in, primarily, Anthropic and SpaceX." That escalates the "almost two-thirds" figure given to Thoughtful Money on Jul-26 and puts a company-specific number on Aug-3's "extremely flattering accounting, bordering on circular financing… legal but… extremely unsustainable." The implication is left for the reader and is unflattering: the reported "E" is largely a mark-to-market on two private valuations — including SpaceX, whose market value Haymaker documented collapsing from ~$2.5T to $1.4T on Aug-3 — so the same line item reverses when the round-trip goes the other way. A caution on earnings quality, not a rating change: no price, target or portfolio action is attached, and Alphabet remains on Haymaker's Trims/Holds list from the Feb-20 "very spendy" trim. | read ↗ |
"View" is Haymaker's stance in this post. GOOG/GOOGL is the only ticker named, and it is cited as evidence in a macro argument about aggregate earnings quality — a step more negative than the Neutral/earnings-quality flag of Jul-26, since the share of profit attributed to stake mark-ups rises from "almost two-thirds" to ~75%. Referenced only (not rowed): Anthropic and SpaceX (the two stakes being marked up — SpaceX is rowed on Aug-3, where its cap is shown falling from ~$2.5T to $1.4T; neither is a call here), ZeroHedge (the chart source), David Rosenberg, Jamie Dimon and Irving Fisher. No sector ETF is named. Research: QT Qualtrim · SA Seeking Alpha · STK Stock Analysis.
2. Talking points
Concede the bullish fact first
- "There is no question that S&P 500 earnings have been spectacular this year." Per ZeroHedge — "which some deride as the financial equivalent of the National Enquirer, but we find a frequent source of interesting factoids" — "they've been the strongest since 1955."
- The comparison year is chosen, not incidental: 1955 was "the peak of the American post-WWII high and the interstate highway construction boom," with "civilian atomic energy… just lifting off, promising an era of cheap and nearly limitless power." The last earnings peak underwritten by a promise of unlimited cheap energy.
The tailwind is spending, and the profit is ownership
- "As prior Haymaker Dailies have conveyed, the current earnings explosion has enjoyed a tremendous tailwind from the AI spending frenzy."
- The precise channel: "profits at the big hyperscalers like Alphabet/Google (GOOG) have been greatly flattered by gains on share ownership in their largest AI customers and partners" — not by selling more, but by owning equity in the buyers.
The number — ~75% of GOOG's first-half profit
- "In GOOG's case, approximately 75% of its first-half 2026 profits have come from the mark-up of its stakes in, primarily, Anthropic and SpaceX."
- The escalation is worth dating: "almost two-thirds" on Jul-26, the general "booking enormous gains on those shares, or warrants, as income… legal but… extremely unsustainable" on Aug-3, and now a hard three-quarters.
- The unstated corollary: a mark-up is a mark-down waiting for the next funding round — and Haymaker himself documented SpaceX's cap falling from ~$2.5T to $1.4T on Aug-3.
Rosenberg's cross-check — 4% ex-energy, ex-AI
- "Canada's highest profile economist, David Rosenberg, calculates that the S&P profits increase this year exclusive of energy and AI-related sectors would be a much more pedestrian 4%."
- Two independent methods — an accounting decomposition (what kind of income is it?) and a sector decomposition (where did it come from?) — arriving at the same answer is the strongest form of this argument.
The chart lesson — spikes are followed by declines
- "A close study of the above chart indicates that past times of earnings spikes have been followed by equally dramatic declines."
- A second ZeroHedge image "would also strongly suggest that at least some mean reversion is to be realistically expected" — the claim is a base rate on the series itself, not a forecast of a catalyst.
Pre-empting "this time is different"
- "Of course, this time could be different. However, one of America's finest CEOs, JPMorgan's Jamie Dimon, has said those are the most dangerous words in the English language."
- The escalation: "In our view, rivaling those would be those uttered by the star American economist of the 1920s, Irving Fisher," who "publicly, and infamously, declared on October 15th, 1929, that 'Stock prices have reached what looks like a permanently higher plateau.'" The date is the argument — the crash began nine days later.
The close — nothing is permanent, including margins
- "If market history teaches us anything, it's that nothing is permanent… other than constant change and extreme volatility."
- And the target of the whole piece, stated last: "As the above charts clearly illustrate, that applies to corporate profits as well." Read with Aug-3: if the S&P is already more overvalued than 2000 on Price/Sales, and the "E" propping up the P/E is substantially a mark-to-market gain, then both halves of the valuation defence fail together.
3. In plain English
A jargon-free note on why the one named company matters here. (Companion to the table above; renders on its consolidated page.)
GOOGL — Alphabet (Google) Negative
Hay is not arguing that Google's search or cloud business has broken. He is arguing that the profit number everyone is quoting is mostly not from running a business at all.
Here's how it works. Google has invested money into companies it also sells to — Anthropic (the AI lab) and SpaceX are the two named. Those companies are private, so there is no market price for the shares; their value gets reset whenever a new investor buys in at a higher price. When that happens, Google is allowed to write its stake up to the new figure and record the increase as profit, even though nothing was sold and no cash arrived. Hay's figure: roughly 75% of Alphabet's profit in the first half of 2026 came from these write-ups, not from operations. Three months ago he put the same figure at "almost two-thirds," so it is getting worse, not better.
Why that matters to a shareholder: the write-up works in both directions. If the next funding round for one of those companies is at a lower valuation, the same accounting line turns into a loss of the same magnitude. Hay had already shown one of the two doing exactly that — SpaceX's implied value fell from about $2.5 trillion to $1.4 trillion within weeks. So the earnings that make the stock look reasonably priced are, in effect, borrowed from two private valuations that can move violently.
The wider point of the piece is that this problem is not confined to Google. Strip out energy and everything AI-related and, per economist David Rosenberg, the whole S&P 500's profit growth this year would be about 4% instead of the strongest since 1955. Hay's conclusion is a base rate rather than a prediction: every past spike in corporate profits has been followed by a comparable slump, so expect some reversion — and be suspicious of anyone explaining why it can't happen this time, which is what Irving Fisher was doing nine days before the 1929 crash. Treat this as a caution on the quality of Alphabet's reported earnings; no rating, target or sell instruction is attached.
Summary derived from the paid Haymaker newsletter (text in transcript.txt) for personal study. Not investment advice. © Haymaker / David Hay for source material.