Big Tech venture capital portfolios are artificially inflating corporate earnings reports through massive investment gains from private artificial intelligence firms like Anthropic and OpenAI, according to financial data from LSEG. Microsoft, Amazon, and Alphabet recently booked sizable investment gains in their latest quarters due to their private stakes in these soaring AI developers, masking software and service revenue growth that would otherwise sit closer to analyst expectations.
How Private AI Valuations Boost Big Tech Earnings
Anthropic and OpenAI are both valued just south of $1 trillion in private markets amid the ongoing AI boom. Because Microsoft and Amazon are private shareholders in both companies, and Google holds a stake in Anthropic, these tech giants must account for the increasing value of their stakes directly on their quarterly income statements, according to market data.
This dynamic drove aggregate S&P 500 earnings growth up around 48% from a year ago in the most recent reporting period, according to LSEG’s head of earnings and equity research, Tajinder Dhillon. When pulling out those investment gains tied to private AI companies, Dhillon points out that growth drops sharply to around 29%, coming much closer to the consensus analyst forecast of 24%.
Did you know? Headline earnings numbers were significantly inflated by equity gains in OpenAI, Anthropic, and SpaceX, according to Gil Luria, managing director and head of technology research at D.A. Davidson. Most analysts routinely exclude these one-time items from their non-GAAP views and forecasts.
Company-by-Company Breakdown of AI Investment Gains
The impact of private market valuations varies widely across individual tech giants because these gains typically land in “other income” categories on financial statements. Amazon reported a more than 240% jump in earnings from a year ago, but that growth shrinks closer to 17% once private investment gains are removed.
Alphabet experienced a similar financial boost, largely driven by Elon Musk’s rocket company, SpaceX, in which the Google parent holds a roughly 5% stake. Alphabet’s bottom-line growth surged nearly 300%, but without gains from SpaceX and Anthropic, the jump would sit closer to 23%. Microsoft reported a more muted impact, adding about 10 percentage points to its earnings growth through an Anthropic investment gain and a $3.2 billion net income increase mostly tied to the same firm, alongside a $480 million gain in its OpenAI stake.
Market Volatility and Upcoming Initial Public Offerings
The close financial ties between Big Tech and private AI developers highlight how intertwined the sector has become before these startups even reach public markets. Anthropic and OpenAI have both filed confidentially with the Securities and Exchange Commission and are expected to list within the next year.
However, relying on private market valuations introduces significant volatility into quarterly balance sheets. SpaceX shares, for example, are down roughly 50% from their post-IPO high. Alphabet will likely face a large reversal in its mark-to-market calculations when reporting September quarter results, according to D.A. Davidson’s Gil Luria, though a successful Anthropic IPO could potentially offset those swings.
Pro Tip for Investors
Frequently Asked Questions
Why are private AI stakes affecting public tech earnings?
Public tech companies that hold equity in private firms like OpenAI and Anthropic must account for rising private valuations on their quarterly income statements as investment gains.
How much did private AI investments inflate overall S&P 500 earnings?
According to LSEG data, aggregate S&P 500 earnings growth reached roughly 48% year-over-year, but dropped to about 29% after removing private investment gains from Alphabet and Amazon.
Are these investment gains considered recurring revenue?
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