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

In recent financial results, big tech companies like Microsoft, Amazon, and Alphabet have reported strong earnings growth due to investments in private AI companies Anthropic and OpenAI, alongside SpaceX. These investments, valued at just under $1 trillion, are accounted for as gains in quarterly income statements, distorting the actual profit generated by selling software and other services.

Consequently, the overall earnings growth for the S&P 500 has been exaggerated, with the S&P 500's growth around 48% from a year ago, but closer to 29% once investment gains are excluded. Analysts Gil Luria and Tajinder Dhillon note that these earnings gains are likely to even out over time, though they currently contribute to unusual earnings surprises.

Companies have reported earnings 7% above expectations, compared to a long-term average of 4.4%. The impact of these investments varies, with Amazon gaining over 240% thanks to its investment in OpenAI and Anthropic, while Alphabet's growth surged 300% due to its stake in SpaceX. Microsoft's earnings growth was also boosted by its investment in Anthropic, adding about 10 percentage points.

Despite the earnings boost from these AI investments, tech companies remain healthy, and their growth is still seen as strong even without the inclusion of private assets.