In recent years, technology giants such as Amazon and Alphabet have driven the stock market to record highs, driven by their artificial intelligence and cloud computing businesses. But in recent years, an unusual factor has become an additional source of profit for both companies – the increase in the value of their investment stakes in artificial intelligence industry companies, writes new york times.
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More than 70% of Alphabet’s quarterly net profit comes from investments in other companies, including SpaceX. Elon Musk’s company went public in June, becoming the largest initial public offering in history. Investment income accounts for about 65% of Amazon’s net profit, driven mainly by Anthropic, a leading artificial intelligence laboratory that is also preparing to go public. The stock market is fragile: The companies driving stocks higher are increasingly dependent on each other for investments.
Dominant tech giants, chipmakers and artificial intelligence labs are investing in and lending to each other. These funds are typically used to purchase products or cloud services from the same partners that funded them. Senior executives in the AI industry have expressed support for such closed-loop financing solutions. OpenAI CEO Sam Altman described the deals as a creative way to free up the capital needed to accelerate innovation in an era of rapid change.
The investment moves by Alphabet and Amazon show that the fates of the two companies are increasingly intertwined. The relationship between stock markets and the broader economy is also evolving: Artificial intelligence is driving growth in both areas, while the threat of a stock market crash is becoming an increasingly real concern for policymakers. Unrealized investment gains in accounting are added to the company’s underlying earnings based on the asset value at the end of each quarter. And if the company doesn’t sell any shares, the profit only exists on paper. The mechanism also works in the opposite direction: if investment assets become cheaper, companies report lower profits.
One of the stock market growth indicators is the “Big Seven”: Alphabet, Amazon, Microsoft, Meta✴Apple, Tesla and Nvidia – many investors are paying attention to them all. This past quarter, their net profit hit $315.6 billion — a figure that covers the three months from April to June for all companies except Nvidia, which has a slightly different fiscal year. According to expert calculations, US$134.6 billion (about 42%) of this amount came from investment profits. Without this component, their profits wouldn’t grow quarter after quarter. Microsoft, Yuan✴Apple and Tesla did not announce investment profits; Nvidia reported revenue of $13 billion. The maker of AI accelerators owns stakes in OpenAI and Anthropic and has invested in other AI-related companies, including CoreWeave and Applied Digital, which lease access to data centers with AI accelerators. It is worth noting that investment income from these seven companies accounted for only 5% of profits last quarter.
As some of the private companies in which tech giants invest go public, investment returns on their assets are likely to continue to fluctuate. Alphabet’s reported profits are apparently largely due to its investment in SpaceX, which is reported to be worth $94.1 billion; Alphabet’s pre-tax profits are nearly $80 billion. Continued positive momentum is no guarantee: SpaceX began public trading on June 12, and its stock price soared quickly, but it currently trades 17% below Alphabet’s June 30 reported levels.
Amazon disclosed to regulators that its $50 billion in investment income came “primarily” from Anthropic stock. If investor skepticism about the AI industry begins to prevail, this could have widespread implications for all market participants given their close ties.
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