The AI Profit Mirage: How Google and Amazon's Earnings are Inflated by Anthropic Investments
Published by AINave Editorial • Reviewed by Ramit
In a groundbreaking revelation, Google and Amazon have showcased record profits in the first quarter of 2026, primarily reflecting their substantial equity gains from investments in the AI startup Anthropic. Alphabet, Google’s parent company, reported a staggering 81% increase in profits, totaling $62.6 billion; however, nearly half of this gain—approximately $28.7 billion—resulted from the updated valuation of its Anthropic stake, rather than core business operations. Similarly, Amazon disclosed $16.8 billion in pretax gains from its investments in Anthropic, making this amount more than half of its total profit for the quarter.
The Anthropic Factor
The significance of Anthropic in the financial performance of leading tech firms cannot be understated. Alphabet’s 14% stake in Anthropic, which saw an increase following a recent $40 billion commitment, highlights the shifting landscape of profit generation within the tech industry. Amazon’s investment, initially valued at $8 billion, has skyrocketed to an estimated worth exceeding $70 billion. This stratospheric increase is attributed to a Series G funding round, alongside the conversion of Amazon's convertible notes into preferred stock. Through these maneuvers, both companies are attributing substantial portions of their earnings directly to Anthropic, thus painting a picture of profitability that may not necessarily reflect their core operational performance.
Why Are These Markups Significant?
These kinds of accounting practices reveal a larger trend within the tech sector where the market value of private equity can dramatically impact reported profits. Robert Willens, a tax and accounting consultant, sheds light on the underlying mechanics, stating that the updates in valuation come directly from the individual negotiation of investors rather than an open market, making the profit calculations appear unusual. What raises eyebrows is that the more these companies invest in Anthropic, the heavier the mark on their profit sheets becomes, creating an apparent conflict of interest.
Furthermore, this model of reporting profits is not new, as previous quarters have seen similar treatments with unrealized gains adding substantial numbers to the bottom line. In the first quarter of 2025, for example, Alphabet booked an $8 billion unrealized gain connected to SpaceX, which subsequently rose to $10.7 billion in the following quarter.
Implications for the Future
As these tech giants indicate plans for nearly $700 billion in capital expenditures this year—an amount comparable to the U.S. government's spending on Medicare—it raises concerns about the sustainability of profit margins reliant on such volatile accounting practices. Analysts predict that the upcoming valuations of Anthropic could push these figures even higher, leading to further complexities in how we perceive the profitability of companies like Google and Amazon.
This situation raises fundamental questions: Can investors truly trust the reported profits when they are substantially influenced by the valuations of private investments? And how often can such valuations dependably represent the reality of a company's financial health? As the market evolves, stakeholders will need to scrutinize the fine print that accompanies these earnings reports.
Given the scale of investment in AI, the stakes have never been higher; thus, the ongoing discussion surrounding profit legitimacy based on private equity valuations is paramount for analysts looking to provide accurate insights and guidance in this rapidly changing landscape.