Alphabet's Earnings Skyrocketed in Q2. Here's Why They Could End Up in the Red Next Quarter

When Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) reported its latest earnings numbers last month, its bottom line was incredibly impressive. Earnings per share of $9.11 skyrocketed a mammoth 294% year over year. Not only was the company's core business doing well, but it also got a boost from nonoperating items, specifically, its investments.

The company benefited from the surge in the value of Space Exploration Technologies Corp. (NASDAQ: SPCX), also known as SpaceX. But while its gains from SpaceX were considerable, that could make Alphabet vulnerable to significant losses in the next quarter, particularly given how badly the space stock has been struggling of late.

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Alphabet's earnings got a near-$100 billion boost from other income

Alphabet has significant stakes in Anthropic and SpaceX, two businesses that are investing heavily in opportunities related to artificial intelligence (AI). While Anthropic may be the more conventional AI investment, as its business centers around its Claude chatbot, AI is also a huge opportunity for SpaceX, as the bulk of its total addressable market of $28.5 trillion ($26.5 trillion) relates to AI.

In Alphabet's second-quarter earnings, covering the three-month period through June 30, its pre-tax profit totaled nearly $139 billion. A year ago, the company's income before taxes was just under $34 billion. Alphabet reported just under $98 billion in net other income, which had a significant impact on the numbers.

Within other income and expenses, Alphabet reported gains on equity securities totaling just over $99 billion, which it says was "primarily related to unrealized gains in our equity securities portfolio from SpaceX and a private company."

SpaceX's volatility could heavily impact Alphabet's current quarter

On June 30, SpaceX's stock closed at just under $171. As of last week, however, it was down to less than $109, looking as though it might fall below $100 in the coming days.

That's a significant decline in just a month, as the space stock's high valuation has likely been giving investors second thoughts about whether it's a good idea to own it. If Alphabet's investment in SpaceX had a significant positive impact on the company's most recent earnings, the reverse may hold for the third quarter, particularly if SpaceX stock doesn't recover within the next two months.

While Alphabet may still be a top growth stock to own, investors need to be cautious when looking at its price-to-earnings (P/E) multiple, given that it's based on unadjusted earnings, and can thus be skewed by how SpaceX and other investments do. Right now, Alphabet looks much cheaper than it normally does, with its P/E ratio at only 18 -- and that can make it look like a much better bargain than it really is.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.