Anthropic IPO Looms: Amazon and Alphabet's Paper Profits Face Uncertain Future

Amazon and Alphabet, two of the world's largest companies, are quietly benefiting from their investments in AI startup Anthropic. The private valuation of Anthropic has skyrocketed, resulting in significant paper profits for Amazon and Alphabet. According to recent financial reports, Amazon's net income included $16.8 billion in pre-tax gains from its Anthropic investments in the first quarter, while Alphabet's second-quarter other income reflected a net gain of almost $99 billion, primarily from net unrealized gains on its equity securities.

The catch is that these gains are unrealized and tied to private valuations, which can change frequently. When Anthropic finally lists publicly, both stakes will be tied to a live market price, introducing volatility that Amazon and Alphabet haven't had to contend with before. This could lead to paper losses in the future if Anthropic's shares slide.

The dual role of Amazon and Alphabet as owners and suppliers of Anthropic also matters. Despite potential fluctuations in their equity stakes, their underlying chip-and-cloud relationships will continue to generate operating income through real, recurring cash revenue.