Big Tech AI investment gains lift reported earnings
Valuation gains on Anthropic, OpenAI and SpaceX holdings boosted recent profits, making headline growth look stronger than core operations.
By Dev Ramirez · Crypto Correspondent
· 3 min read
Big Tech AI investment gains gave recent reported profits an extra lift at Amazon, Alphabet and Microsoft. For investors reading earnings headlines, the distinction is important: part of the growth came from rising values assigned to private-company holdings, rather than from selling more cloud services, software or advertising.
CNBC reported that the companies recorded gains tied to stakes in Anthropic and OpenAI, plus SpaceX in Alphabet's case. When the estimated value of an investment rises, a company may have to reflect that increase in its quarterly income statement. These paper gains generally appear in “other income,” CNBC reported, and companies do not disclose them in exactly the same way.
That accounting treatment can raise net income, the bottom-line profit figure, without representing cash profit from a company’s main business. It also makes comparing headline earnings growth across companies more difficult.
How do Big Tech AI investment gains affect earnings?
LSEG put S&P 500 earnings growth for the latest quarter at about 48% from a year earlier. Tajinder Dhillon, LSEG’s head of earnings and equity research, said growth would have been about 29% after excluding gains from Alphabet’s and Amazon’s private-company stakes. That is a 19-percentage-point difference.
The 29% figure does not remove every investment effect across the index. It specifically excludes the gains from Alphabet and Amazon identified in LSEG’s calculation. Still, it remained above the 24% growth rate analysts had expected for the quarter, according to CNBC.
Amazon: The company reported a $53.4 billion gain primarily from its Anthropic investment, CNBC said. Its year-over-year earnings growth exceeded 240%, but would have been closer to 17% without the investment gains, according to the report.
Alphabet: Bottom-line growth was nearly 300%. CNBC said it would have been closer to 23% without gains associated with SpaceX and Anthropic. Alphabet has a roughly 5% stake in SpaceX, the report said.
Microsoft: CNBC reported a $3.2 billion net-income gain mostly from Anthropic and a $480 million gain on its OpenAI stake. The investment gains added about 10 percentage points to its earnings-growth rate, CNBC said.
The effect reaches beyond three earnings releases because the largest technology companies carry significant influence in major indexes. LSEG said the Magnificent Seven accounted for about 35% of S&P 500 second-quarter revenue.
Valuation changes can work in the other direction as well. A decline in the value assigned to an investment can reduce future reported profit or produce a loss. D.A. Davidson technology research head Gil Luria told CNBC that these moves often even out over time and are commonly excluded from non-GAAP measures and forecasts. CNBC noted that SpaceX was roughly 50% below its post-IPO high, illustrating that the same accounting can add volatility.
KKM Financial chief executive Jeff Kilburg offered a different reading, telling CNBC that underlying corporate earnings remained strong even excluding private-asset gains. The practical takeaway is to separate operating results from investment-related income when judging how much of a headline profit increase came from the core business.
This story draws on original reporting from CNBC.
