Big Tech's Anthropic and OpenAI stakes are distorting the corporate earnings picture

Corporate earnings for major tech companies like Microsoft, Amazon, and Alphabet have been inflated by substantial gains from investments in venture-funded AI startups Anthropic and OpenAI, according to market analysis. These stakes in private companies have valuations near $1 trillion, contributing to earnings growth that is far above initial forecasts.

However, when these investment gains are factored out, the growth appears more muted, closer to expectations. This phenomenon, dubbed "Big Tech's stake distortion," has resulted in earnings surprises of around 7%, compared to a long-term average of 4.4%. Major tech players, including Amazon and Alphabet, have invested heavily in Anthropic and OpenAI, with Amazon committing $50 billion to ChatGPT maker OpenAI and Alphabet holding a stake in SpaceX, a venture led by tech mogul Elon Musk.

When stripping away these investment gains, earnings growth for the S&P 500 would be around 29%, a more modest figure than the current 48% growth rate. Analysts typically exclude these one-time items from non-GAAP earnings estimates. However, the underlying earnings growth of these tech giants remains strong, with corporate profits exceeding expectations by 7% in the most recent quarter.

Despite the recent volatility in SpaceX's stock price following its IPO, the impact is expected to level out over time.