Big Tech's AI Stakes Inflate Earnings Reports

Big Tech companies like Microsoft, Amazon, and Alphabet have been making significant investment gains in private AI companies Anthropic and OpenAI. These stakes have inflated corporate earnings reports, with some companies seeing their profits boosted by as much as 240%.

The companies' investments in these AI startups have led to massive valuation increases, with both Anthropic and OpenAI valued at just under $1 trillion. Microsoft and Amazon are private shareholders in these companies, while Alphabet has a stake in Anthropic.

This phenomenon has had an outsized impact on overall earnings growth, according to LSEG's head of earnings and equity research Tajinder Dhillon. When adjusting for the investment gains from private AI companies, the growth is much more muted, at around 29%.

Gil Luria, managing director and head of technology research at D.A. Davidson, notes that these types of moves tend to even out over time. In the near term, however, they have resulted in more earnings upside surprises, with companies reporting an average 7% above expectations.