Tech giants are reporting substantial earnings growth, largely driven by investment gains in private AI companies, which do not reflect core business performance. Microsoft, Amazon, and Alphabet have seen their earnings boosted by their stakes in Anthropic and OpenAI, with Alphabet's growth nearly 300% and Amazon's over 240%.
However, when excluding these one-time investment gains, the actual earnings growth for these companies is much lower, around 29%, compared to the consensus forecast of 24%. Analysts, including Gil Luria from D.A. Davidson, caution that these inflated earnings figures may not be sustainable and typically exclude such gains from forecasts.
The influence of these mega-cap tech stocks is significant, as they account for about 35% of the S&P 500's revenue. As these AI companies prepare for potential public offerings, the volatility in their valuations could lead to fluctuations in reported earnings for their investors.
Despite the current inflated earnings, some analysts believe the underlying growth remains strong, with Jeff Kilburg from KKM Financial describing the profits as 'sprinkles' on an already robust earnings season