Anthropic's IPO Could Unleash Volatility on Amazon and Alphabet's Earnings

Anthropic's highly anticipated Initial Public Offering (IPO) has significant implications for Amazon and Alphabet, two of the world's largest companies. As major backers of Anthropic, their stakes in the AI startup have soared in value, contributing to substantial paper gains on their balance sheets.

Amazon's first-quarter net income included $16.8 billion in pre-tax gains from its Anthropic investments, while Alphabet's second-quarter other income reflected a net gain of almost $99 billion, primarily from net unrealized gains on its equity securities.

However, this 'windfall' is not without risk. A public listing would introduce volatility to these companies' earnings, as their stakes in Anthropic are tied to a live market price that can fluctuate with each trading day. This could potentially turn what was once a one-way boost into a two-way street.

The dual role of Amazon and Alphabet as both significant owners of Anthropic and suppliers to it provides some protection against this volatility, as their underlying chip-and-cloud relationships continue to generate operating income regardless of the stock's price. Nevertheless, investors should be cautious not to mistake these markups for operational strength, as much of the recent profit growth at both firms reflects Anthropic's rising valuation rather than the performance of their core businesses.