Big Tech reaped $160b in investment gains last quarter — clouding core earnings

US Big Tech companies are generating substantial profits from equity stakes in other AI firms — but analysts warn those gains are muddying their core business performance and making it harder to assess whether an AI bubble is forming. The firms' combined AI investment gains reached roughly $160 billion in the last quarter alone, a figure boosted significantly by SpaceX's stock market listing. With OpenAI and Anthropic also preparing initial public offerings, the effect is expected to grow.

The Financial Times reported Sunday (local time) that Alphabet, Amazon, Nvidia and Microsoft all posted sharp increases in pretax profit in their most recent earnings releases, driven by unrealized gains on stakes in other AI companies. Under accounting rules, such gains are classified as "other income."

Alphabet, Google's parent company, recorded other income of $97.9 billion last quarter — more than double the figure from the previous quarter. Amazon's other income over the same period reached $53.4 billion, more than triple its prior-quarter total.

SpaceX's listing was a major driver of those gains. The Big Tech firms had held stakes in SpaceX, and the company's debut on public markets sent the value of those holdings sharply higher.

Before its listing, SpaceX absorbed Elon Musk's AI company xAI, and the combined entity's market value soared after going public, lifting the worth of existing investors' stakes. Nvidia was among the notable beneficiaries. The chipmaker recorded $7.7 billion in other income during the three months through late July, partly reflecting its holding of 123 million SpaceX shares.

The trend is expected to continue. OpenAI and Anthropic are both preparing to go public, and Microsoft, Amazon and Nvidia all hold stakes in OpenAI through participation in funding rounds. Anthropic has similarly received investment from Amazon, Google and Microsoft.

Critics say the gains make it difficult to judge Big Tech's true profitability. The concern is that it is becoming hard to gauge how well these companies are generating cash from their core businesses. In practice, the recent surge in pretax profit at both Alphabet and Amazon owed more to rising valuations of holdings such as SpaceX and Anthropic than to cash generation from their main operations.

Analysts also say the phenomenon complicates efforts to assess the reality behind the sharply contested debate over whether AI is in a bubble.

Manish Kabra, head of US equity strategy at Societe Generale, said gains from equity stakes in AI companies "raises questions about earnings quality" and added that the dynamic had contributed to the market lowering price-to-earnings multiples for these companies from around 25 times to about 20 times.

Kasper Elmgreen, chief investment officer for fixed income and equities at Nordea Asset Management, said Big Tech's first-half earnings had "materially overstated" their ability to generate recurring profits, and that the cyclical nature of AI-related gains was "something to watch."

Ben Snider, senior US equity strategist at Goldman Sachs, said the investment-driven earnings boost raised questions about "whether the growth companies are reporting is grounded in real demand, or whether it is distorting the underlying picture in some way."

Analysts also warned that the large one-time gains this year could weigh on earnings growth rates next year. Unless AI-backed companies continue listing and their valuations keep rising to generate comparable windfalls each year, a base effect will ultimately drag reported growth rates lower.

Scott Chronert, US equity strategist at Citi, warned that "earnings being lifted by unrealized investment gains means there is a real possibility that profit growth turns negative next year."