Big Tech earnings get $160bn lift from AI investment gains

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Big Tech AI earnings boost

Highlights

Alphabet's other income surged to $97.9bn and Amazon's more than tripled to $53.4bn in Q2 2024, driven by AI equity revaluations.
Nvidia reported $7.7bn in other income for the quarter ending July, reflecting a large SpaceX stake, though below gains recorded on Intel shares previously.
Market analysts warn that $160bn in one-off AI stake revaluations distort profit quality, contributing to a decline in sector price-to-earnings multiples from 25x to 20x.

AI stake revaluations reshape quarterly results

As reported by Financial Times, Alphabet, Amazon, Nvidia and Microsoft are recording substantial additions to pre-tax profit through the other income line, largely reflecting changes in the value of equity holdings in AI-related companies such as OpenAI, Anthropic and SpaceX. The effect is becoming more visible as accounting rules require companies to run quarterly valuation changes on these investments through profit or loss.

The scale of the uplift has accelerated this year, helped by SpaceX's public float after absorbing xAI, which gave existing investors a major revaluation gain. The contribution from other income in the latest quarter is more than double the roughly $69bn recorded in the previous three-month period, and expected public offerings by Anthropic and OpenAI could extend the pattern into the coming year.

At Alphabet, other income more than doubles to $97.9bn for the three months to June 30 from the previous quarter, while Amazon's figure more than triples to $53.4bn. Nvidia, which discloses a large equity portfolio including nearly 123mn SpaceX shares at the end of June, reports $7.7bn in other income for the three months to the end of July, below the prior quarter when gains on Intel shares are larger.

Investors question durability of profit quality

Analysts say the gains are making it harder to separate recurring operating performance from one-off valuation movements, even as underlying earnings in the U.S. technology sector remain strong. Because private holdings are typically revalued only after new funding rounds while listed assets are marked each quarter, the timing of reported profit can appear uneven and potentially misleading at a high level.

Ben Snider, chief U.S. equities strategist at Goldman Sachs, says the trend raises questions about whether reported growth reflects underlying demand or is misleading in some way. Manish Kabra, head of U.S. equity strategy at Société Générale, says the gains raise earnings quality questions and contribute to the market trimming price-to-earnings multiples from about 25 times to 20 times.

Kasper Elmgreen, fixed income and equities chief investment officer at Nordea Asset Management, says first-half earnings materially overstate repeatable earnings power, while Louise Dudley, a global equities portfolio manager at Federated Hermes, says the size of the adjustments is difficult to ignore and adds risk to analysis. Scott Chronert, U.S. equity strategist at Citi, says these one-off contributions could set companies up for negative earnings growth next year if the valuation boost does not repeat.

In our earlier coverage of Big Tech’s AI investment revaluations, we noted that Alphabet, Amazon, Nvidia and Microsoft were booking large, often volatile gains in “other income” as their stakes in companies like OpenAI, Anthropic and SpaceX were marked up each quarter under accounting rules. We also highlighted that these paper gains can obscure underlying operating trends and have fueled concerns about earnings quality, contributing to a pullback in valuation multiples as investors weigh how repeatable the boosts really are.

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