Tech giants like Amazon and Alphabet have powered the stock market to record highs in recent years, fueled by the growth of their artificial intelligence and cloud computing businesses.
But in recent months, a big driver of those two companies’ profits came from an unusual source: The increasing value of their investment stakes in artificial intelligence companies.
Over 70 percent of Alphabet’s net quarterly income came from investments in other companies, and in particular, in Elon Musk’s SpaceX, according to a recent regulatory filing and analysis from Satori Insights, a financial markets research firm. SpaceX went public in June in the biggest initial public offering ever.
Investment gains also accounted for roughly 65 percent of Amazon’s net income, largely stemming from its stake in Anthropic, a leading A.I. start-up that is also planning to go public.
Those gains underscore a growing vulnerability in the broader stock market: The companies that keep pushing the market higher are increasingly dependent on each other’s success.
“It’s circular,” said Matt King, founder of Satori Insights. “What’s funding A.I. is now increasingly more A.I.”
Worries about the circular nature of the A.I. boom have persisted for some time, as investors have watched the dominant tech giants, chipmakers and A.I. labs invest in or loan each other money. That money is often then used to buy products or cloud services from the same companies funding them.
A.I. executives have defended these circular financing models. Sam Altman, the chief executive of OpenAI, has described the deals as a creative way to free up the capital needed to supercharge innovation at a time of rapid change.
But the investment gains at Alphabet and Amazon show how these companies’ fortunes are increasingly linked. They also point to the increasing interconnectedness of the stock market and the broader economy: A.I. is powering growth in both, making the threat of a stock market tumble an even greater concern for policymakers.
“The stock market was never just a reflection of the economy, but it’s now become one of the economy’s main engines,” said Mr. King.
Unrealized investment gains are added to a company’s profit for accounting purposes, according to the value of holdings at the end of each quarter. Unless the company sells any of the stakes, the gains are purely on paper. It also works in reverse: A decline in the value of investment holdings during a quarter can subtract from a company’s reported earnings.
Alphabet and Amazon did not respond to requests for comment.
They are part of a small group of closely watched technology companies, nicknamed the Magnificent 7, which also includes Microsoft, Meta, Apple, Tesla and Nvidia. This group has become a measure for the tech-driven stock market rally, and many investors like to look at the seven companies in aggregate.
Overall, the Magnificent 7 pulled in $315.6 billion in net profit for the second quarter. That covers the three months through June for all of the companies except Nvidia, which has a slightly different financial year.
Of that total, $134.6 billion, or about 42 percent, came from investment gains, according to calculations made by Mr. King, who adjusted the companies’ reported numbers to account for taxes. Other sources of net profit are typically earnings from the sale of goods and services.
Without those investment gains, profits for this group would have been roughly equal to the previous quarter — not growing — according to Mr. King. Microsoft, Meta, Apple and Tesla did not report any comparable investment income.
Nvidia reported roughly $13 billion in investment gains for its most recent quarter. The chipmaker has stakes in OpenAI and Anthropic, as well as investments in other A.I.-related companies, including CoreWeave and Applied Digital, which rent data-center access to high-powered processors for A.I. models.
The second-quarter investment gains for these seven companies was a much larger share of overall profits than the 5 percent they totaled in the previous quarter, according to Mr. King’s calculations.
Going forward, investment gains on the tech companies’ holdings could continue to fluctuate as some of the private companies they are invested in go public.
The gains announced by Alphabet, which owns Google, appear to be largely attributable to its investment in Mr. Musk’s space and A.I. company SpaceX. It reported nearly $80 billion in pretax profit stemming from investments in restricted equity securities and also disclosed holdings of $94.1 billion of SpaceX shares.
That gain is likely to change. When SpaceX started publicly trading on June 12, its shares soared. Since then, the stock has gyrated wildly, and share price is now roughly 17 percent below its level on June 30, when Google reported its stake.
Amazon said in a regulatory filing that its $50 billion investment gain came “primarily” from its stock in Anthropic.
If this interconnected A.I. boom begins to reverse — if, say, investors grow skeptical that artificial intelligence will generate big enough profits to pay for the massive infrastructure build-out underway — it will have broad consequences, analysts and economists said.
“The A.I. trade is massively important to the U.S.,” said Ajay Rajadhyaksha, global chairman of research at Barclays. “We are more exposed to the A.I. trade unwinding as an economy than we were even a few years ago.”
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