The S&P 500's latest earnings season delivered a headline growth rate of nearly 50% year-over-year. Strip out the mark-to-market gains from stakes in Anthropic, OpenAI, and SpaceX, and the figure drops to 29%. That 18-percentage-point gap is large enough to mislead about the underlying health of the market's most influential companies.
The Mechanics of the Distortion
Public companies holding equity in private ventures must reflect changes in the fair value of those stakes in their income statements. For Amazon, Alphabet, and Microsoft, this requirement has turned their "other income" lines into a volatility amplifier. Amazon's reported earnings growth of 240% in the most recent quarter collapses to 17% when the Anthropic and OpenAI gains are excluded. Alphabet's 300% growth narrows to 23% without its SpaceX and AI portfolio uplift. Microsoft's distortion is smaller but still material — a 10-percentage-point boost to its earnings growth rate.
These gains are not recurring operating income. They are accounting entries tied to the fluctuating valuations of illiquid assets, yet they flow directly into net income, where they are indistinguishable from core business performance in headline earnings reports. The result is a temporary uplift that obscures the true trajectory of revenue, margins, and cash flow.
The Anthropic IPO as Inflection Point
Anthropic's confidential S-1 filing in June and its $65 billion Series H round in May have set the stage for an October debut. The company's reported run-rate revenue of $47 billion and its first projected profitable quarter are metrics that could justify its private valuation — or expose its fragility. Once public, Anthropic's daily stock price will replace intermittent mark-to-market adjustments, introducing a sustained new source of volatility for its corporate backers.
Amazon and Alphabet together hold nearly $150 billion in mark-to-market gains from their AI and SpaceX investments. If Anthropic's IPO prices below its last private round, impairment charges could follow, reversing the recent earnings uplift. A strong debut could further inflate the valuations of OpenAI and other private AI labs, amplifying the distortion in future quarters.
Operating Strength vs. Venture Luck
Amazon's reported earnings growth of 240% suggests a business firing on all cylinders, but the underlying 17% growth rate describes the core business more accurately. Alphabet's dominance in digital advertising and cloud computing is similarly obscured by its $99 billion in mark-to-market gains, up from just $1 billion a year ago.
The intertwining of Big Tech and AI labs means the financial performance of the former is increasingly tied to the speculative valuations of the latter. Separating operating strength from venture portfolio volatility has become a prerequisite for any fundamentals-based assessment of these businesses.
Historical Precedent for Reversals
When Amazon and Tesla held large stakes in Rivian and Bitcoin, respectively, mark-to-market gains initially boosted earnings before reversing into impairment charges when valuations fell. The same pattern could play out with AI stakes. If Anthropic's IPO stumbles, impairment charges could wipe out a significant portion of the recent earnings uplift, leaving the underlying businesses exposed to sharper scrutiny.
The S&P 500's current earnings growth is being propped up by a handful of non-operating gains concentrated in a few mega-cap balance sheets. If those gains evaporate, the index's valuation multiples could look far less attractive. The distortion is a tailwind for now, but a fragile one — dependent on the continued ascent of a small group of private companies whose prices are still set in occasional funding rounds rather than continuous markets.