Stakes in SpaceX and Anthropic drove Alphabet and Amazon's latest gains, fuelling fresh concentration worries
A growing share of the profits reported by the largest US technology companies is coming not from selling products and services but from the rising value of their stakes in other artificial intelligence (AI) firms, a shift that leaves the equity market rally more reliant on the sector's own internal bets.
According to analysis from financial markets research firm Satori Insights cited by The New York Times, more than 70 percent of Alphabet's net quarterly income stemmed from investments in other companies, chiefly Elon Musk's SpaceX, which completed the largest initial public offering on record in June.
Investment gains accounted for roughly 65 percent of Amazon's net income over the same period, largely from its stake in AI developer Anthropic, the same analysis found.
Across the Magnificent Seven, the group of megacap firms that also includes Microsoft, Meta, Apple, Tesla, and Nvidia, the seven together booked US$315.6bn in net profit for the second quarter, of which US$134.6bn, or about 42 percent, came from investment gains, Satori founder Matt King told The New York Times after adjusting the reported figures for taxes.
That share stood at about 5 percent in the previous quarter, and stripping out the gains would have left group profits roughly flat rather than growing, King said.
He described the dynamic as "circular" in the same interview, warning that the capital funding AI is increasingly AI itself, and adding that the stock market has become one of the economy's main engines rather than only a reflection of it.
The reported gains are largely unrealized.
Under accounting rules, as The New York Times explained, the paper value of investment holdings at the end of each quarter is added to profit, and a decline in those holdings can subtract from earnings just as readily.
Alphabet's regulatory filing reported nearly US$80bn in pretax profit tied to restricted equity securities and disclosed US$94.1bn of SpaceX shares, a figure likely to move: SpaceX began trading on June 12, and its shares now sit about 17 percent below their June 30 level, when Alphabet booked the stake.
Amazon said in its own filing that its US$50bn investment gain came primarily from Anthropic.
Anthropic's annualized revenue run rate reached US$65bn at the end of July in an update the company shared with investors, a sevenfold increase from a year earlier, alongside preliminary second-quarter revenue of US$11.5bn.
The company filed confidentially for an initial public offering in June, CNBC reported, and is seeking to justify a US$965bn valuation.
A correction in US technology stocks is likely and could threaten euro area financial stability even if AI eventually meets investors' hopes, European Central Bank economists wrote in a post on the ECB's blog, arguing that a pullback "should be expected even if current valuations are rational."
Euro area households hold about €440bn of US tech exposure, the economists wrote, and because US and euro area markets have historically been highly correlated, a "US AI fallout would not remain a US problem."
The economy-wide uncertainty AI now represents "cannot be diversified," they added in the same post.
Wall Street strategists point to signs that AI outlays are beginning to translate into earnings for the hyperscalers running the largest cloud businesses.
"We are seeing signs that the spending is leading to earnings," Truist chief investment officer Keith Lerner told Yahoo Finance.
JPMorgan lifted its S&P 500 target to 8,000 from 7,800, citing strong cloud demand, Yahoo Finance reported, while Bank of America research put cloud computing backlogs among the top four providers above US$2.3tn, up 16 percent from the first quarter.
Microsoft's Azure business topped US$100bn in annual sales for the first time last quarter, and Amazon's cloud division grew 36.7 percent, its fastest pace in 18 quarters, according to figures cited by Yahoo Finance.
Monetization may start ramping faster than spending, easing concerns about returns on invested capital, JPMorgan strategist Dubravko Lakos-Bujas told the outlet.
Promises of payments under leases that have not yet begun totaled US$1.2tn in off-balance-sheet obligations across the companies analyzed by The Wall Street Journal, about four times the level disclosed a year earlier, alongside US$1.9tn in purchase obligations.
Alphabet's purchase commitments and contractual obligations stood at US$811bn as of June 30, up from US$332bn three months earlier, the Journal reported, with some energy agreements running as far out as 2054.
Both Alphabet and Amazon recently reported negative free cash flow, meaning capital spending outstripped the cash generated by their operations, according to the same analysis.
"It is becoming increasingly difficult for investors to assess companies' total potential leverage," Morgan Stanley accounting analysts wrote of the growing off-balance-sheet commitments, in a note cited by The Wall Street Journal.
"We are more exposed to the AI trade unwinding as an economy than we were even a few years ago," Ajay Rajadhyaksha, global chairman of research at Barclays, told The New York Times.
The ECB economists were blunter on the limits of foresight, writing in their blog post that boom-and-bust patterns are "only identifiable with hindsight" and that it is "impossible" to judge in advance where the market stands on that path.
