Big Tech's AI investment gains inflate S&P 500 earnings, analysts warn

Surging valuations of unlisted AI companies such as OpenAI and Anthropic have significantly inflated the earnings of major US tech firms — and, by extension, the overall profit growth rate of the S&P 500 — analysts say.

CNBC reported Monday that unrealized investment gains from Big Tech's stakes in unlisted AI companies had substantially boosted second-quarter earnings.

Tajinder Dhillon, head of research at financial data firm LSEG, said second-quarter earnings growth for S&P 500 companies came in at roughly 48 percent year-on-year. Strip out unrealized gains on stakes in unlisted AI firms such as OpenAI and Anthropic, however, and the actual pace of growth was far lower, he said.

According to FactSet, with 61 percent of S&P 500 companies having reported results as of July 31, second-quarter earnings per share growth was projected at 47.4 percent year-on-year. Exclude Microsoft and Amazon, however, and that figure falls to 28.8 percent.

Jill Lurie, managing director at D.A. Davidson, said the headline earnings figures "have been significantly inflated by investment gains from OpenAI, Anthropic and SpaceX."

Microsoft generated most of its $3.2 billion increase in second-quarter net profit from its Anthropic investment, while also recording $480 million in unrealized gains on its OpenAI stake.

Amazon's net profit surged more than 240 percent year-on-year, largely on investment gains — but excluding those gains, the growth rate drops to around 17 percent.

Alphabet, Google's parent company, posted net profit growth of more than 300 percent, boosted by gains on its SpaceX and Anthropic investments. Analysts estimate that stripping out those investment effects would leave underlying growth at around 23 percent.

LSEG noted that the so-called Magnificent Seven account for roughly 35 percent of total S&P 500 sales, meaning their investment gains carry considerable weight on the index's overall earnings picture.

The trend illustrates how deeply unlisted AI companies have become embedded in Big Tech's earnings and valuations even before those firms go public.

However, analysts also note that Big Tech's core business competitiveness remains solid even after setting aside unrealized investment gains.

Jeff Kilburg, founder of KKM Financial, said earnings growth at Big Tech companies remains "very strong" even without the effect of investments in unlisted AI firms, adding that AI investment and core business growth are simultaneously supporting results.