The Hidden Source Behind Google and Amazon's Record Spring 2026 AI Profits

2026-05-07 companies

San Francisco, Wednesday, 6 May 2026.
Nearly half of Google and Amazon’s massive spring 2026 profits stem from paper gains on their Anthropic investments, raising critical questions about the true pace of AI software monetization.

The Paper Profits Behind the Earnings Boom

During the spring 2026 earnings season, the financial markets were captivated by the staggering profit growth reported by Alphabet Inc. (GOOGL) and Amazon.com Inc. (AMZN) [1][2][5]. In the first quarter of 2026, Alphabet saw its net income soar by 81% to a record $62.6 billion, while Amazon reported a 77% surge in net income, reaching $30.3 billion [1][3]. However, a closer examination of these figures reveals that a substantial portion of this profitability did not originate from core operations like search advertising or retail sales [1][2]. Instead, the secret driver behind these headline numbers was the massive unrealized gains from their private equity stakes in the artificial intelligence startup Anthropic [1].

Accounting Rules and Circular Ecosystems

The ability of these tech giants to claim such massive profits from private investments stems from a 2018 mandate by accounting regulators, which requires corporations to count unrealized equity gains as standard profit [1]. Tax and accounting experts have pointed out the unique dynamic this creates, as these companies can directly influence the valuation of the assets they hold by engaging in massive business transactions with them [1]. Anthropic, which is reportedly in talks to reach a staggering $900 billion valuation, perfectly illustrates this phenomenon [1]. Amazon’s initial $8 billion investment in the startup has already ballooned to an estimated value of over $70 billion [1].

Core Operations vs. Capital Expenditure Realities

Despite the distortion caused by equity gains, the underlying operational growth in cloud computing remains robust, albeit highly capital-intensive [2][4]. Google Cloud revenues jumped 63% to exceed $20 billion for the first time, with operating margins expanding from 18% to 33% [2][3]. Amazon Web Services (AWS) also demonstrated significant acceleration, posting 28% year-over-year growth—its fastest pace in 15 quarters—to reach an annualized run rate of nearly $150 billion [4][5]. Within AWS, the AI-specific revenue run rate has already surpassed $15 billion, demonstrating tangible enterprise adoption [4].

Wall Street’s Verdict on AI Monetization

As of May 2026, Wall Street is grappling with how to properly value these dual engines of growth: operational cloud dominance and private equity windfalls [2][5]. Alphabet’s stock experienced significant price discovery after posting earnings per share of $5.11, which easily beat consensus estimates of $2.62 to $2.67 [2]. Meanwhile, Amazon, commanding a market capitalization of roughly $2.88 trillion to $2.9 trillion, is trading at a price-to-earnings ratio of 32.09 [4][5]. Financial models suggest Amazon may be overvalued by approximately 17.6% relative to its intrinsic value, reflecting the heavy premium investors are placing on its AI leadership [5].

Sources

Artificial intelligence Corporate earnings