Big Tech Posts Over 220 Trillion Won in AI Stake Valuation Gains, Raising Concerns of "Earnings Illusion"

Major U.S. tech companies recorded more than $160 billion (approx. 220 trillion won) in earnings boosts last quarter due to increased valuations of their equity stakes in other artificial intelligence (AI) companies.

The Financial Times (FT) reported on the 31st local time that Alphabet, Amazon, Nvidia, and Microsoft (MS) saw significant increases in their pre-tax profits in their recent earnings releases, driven by valuation gains on their holdings in other AI firms.

Stake valuation gains are accounted for as "other income" in financial statements.

Alphabet's other income for the three months ending in June reached $97.9 billion (approx. 135 trillion won), more than double the previous quarter.

Amazon also saw its other income surge more than threefold to $53.4 billion (approx. 74 trillion won) over the same period.

In particular, the listing of Elon Musk's space venture, SpaceX, sharply boosted equity valuation gains for big tech firms this year.

Alphabet, Google's parent company, and Nvidia both hold stakes in SpaceX.

Prior to its listing, SpaceX absorbed Musk's AI company, xAI. Its corporate value surged following the IPO, which also drove up the value of shares held by existing investors.

As of the end of June, Nvidia held approximately 123 million shares of SpaceX.

Nvidia's other income for the three-month period ending in July reached $7.7 billion (approx. 11 trillion won).

However, criticisms have been raised that these equity valuation gains make it difficult to assess the true profitability of big tech companies.

In the case of Alphabet and Amazon, the primary driver of their recent pre-tax profit growth was not new business ventures or cash generation, but the rising value of their investments in companies like SpaceX and Anthropic.

This implies that one-off valuation gains stemming from AI investments have obscured the underlying profitability of big tech.

Ben Snider, senior U.S. equity strategist at Goldman Sachs, commented on the profit growth driven by AI investments, saying, "Questions are being raised as to whether the growth reported by companies is based on actual demand, or if it is distorting the reality in some way."

In particular, the value of stakes in unlisted companies is reassessed whenever those firms raise new capital.

If OpenAI and Anthropic go public in the future, it is expected that equity valuation gains will continue to heavily impact big tech earnings.

Experts also point out that the massive one-off valuation gains recorded this year could act as a factor dragging down earnings growth rates next year.

Scott Chronert, U.S. equity strategist at Citi, said, "The fact that earnings rose due to stake valuation gains means that there is also a possibility that profit growth rates could turn negative next year."

(Photo: AP, Yonhap News)
※ Please note: This article was translated by AI and may contain errors.