Big Tech's AI-Related Paper Gains Exceed $160 Billion, Sparking Earnings Quality Debate
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Alphabet, Amazon, Nvidia, and Microsoft together booked over $160 billion in unrealized gains from AI-related equity stakes last quarter — more than double the prior quarter's ~$69 billion — pushing pre-tax profits to records while raising pointed questions about how real those profits are.
Where did $160 billion come from?
The gains sit in the "other income" line of each company's earnings, driven by mark-ups on stakes in OpenAI, Anthropic, and a surge from SpaceX's IPO.
SpaceX absorbed Musk's xAI before listing, folding AI data-center operations into its core story. Both Alphabet and Nvidia hold SpaceX shares and booked significant paper returns post-IPO.
This means → The $160 billion was not earned by selling products or services. It is equity that rose in value on paper — unrealized, not yet cashed out.
How much did each company book?
Alphabet's "other income" more than doubled quarter-on-quarter to $97.9 billion, driven mainly by SpaceX and Anthropic holdings.
Amazon's jumped more than threefold to $53.4 billion, likewise from holdings rather than new revenue streams.
Nvidia holds roughly 123 million SpaceX shares and recorded $7.7 billion in "other income" — down from the prior quarter, when an Intel stake drove larger gains.
In plain terms = The record pre-tax profit headlines look impressive, but the main driver was not selling things — it was numbers going up inside an investment portfolio.
Why is Wall Street skeptical?
Goldman Sachs strategist Ben Snider frames the core question: whether reported growth "is based on real demand or is in some sense misleading."
SocGen U.S. equity head Manish Kabra labels these gains a source of "earnings-quality questions" and notes the market has already compressed P/E multiples from roughly 25× down to about 20×.
This means → Investors are applying a lower valuation multiple to discount these profits — the market treats this kind of income as soft and unsustainable.
How much is sustainable earnings overstated?
Nordea CIO Kasper Elmgreen says first-half earnings "materially overstated sustainable earning power," calling the cyclicality of AI gains "a concern."
AllianceBernstein portfolio manager Louise Dudley concedes the adjustments are "hard to ignore" and "will undoubtedly introduce additional risk," but adds that these firms "deserve some credit for investing in and partnering with highly successful businesses."
In plain terms = Even fund managers who are bullish on these companies are saying — the numbers look great, but don't treat a one-time mark-up as recurring income.
Where is the risk going forward?
Citi strategist Scott Chronert states the downside directly: these gains "set the stage for potentially negative earnings growth next year."
An accounting asymmetry is the key mechanism — private-company stakes are revalued only after a new funding round, while public-company stakes adjust every quarter. This means a future quarter could see a concentrated downward revision.
If Anthropic's and OpenAI's expected IPOs go ahead, those stakes will shift to quarterly mark-to-market, amplifying volatility further.
This means → The same mechanism inflating profits today can drag them down tomorrow — a high base effect plus valuation pullbacks could make next year's year-on-year numbers look ugly.
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