Amazon, Alphabet Valuations Soar Without One-Time Gains

Amazon and Alphabet reported eye-catching second-quarter profits, but the numbers are inflated by massive one-time gains from their investments in AI startup Anthropic. If those windfalls are stripped out, both tech giants trade at roughly 27 to 30 times forward earnings.

Amazon's net income rose to $62.6 billion, up from $18.2 billion a year earlier, with non-operating pre-tax other income of $53.4 billion primarily from Anthropic investments. Alphabet's second-quarter net income surged 298% to $112.2 billion, driven by other income of $98.0 billion from stakes in SpaceX and Anthropic.

Beneath the mark-ups, both companies' operating engines are performing well. Amazon's operating income rose 43% year over year to $27.5 billion, while AWS grew 37% to $42.2 billion, its fastest pace in 18 quarters. Alphabet's revenue climbed 24% to $119.8 billion, and Google Cloud accelerated to 82% growth.

The forward drag comes from capital spending. Amazon increased its capital spending plan to about $220 billion, citing rising memory costs. Alphabet raised its full-year plan to as much as $205 billion after doubling year-over-year capital spending to $44.9 billion in the quarter.