The Reality Behind Big Tech’s Earnings: A Cautionary Perspective
In light of the current enthusiasm surrounding artificial intelligence, the financial performance of major tech companies, often referred to as ‘Big Tech’, may take a backseat. Nevertheless, it is important to recognise that there will come a time, sooner rather than later, when investors will scrutinise the actual strength of these companies’ earnings. Presently, their figures appear buoyed by increasing valuations in smaller, private tech ventures, raising questions about the sustainability of such growth.
Goldman Sachs strategist Ben Snider highlighted that the earnings growth observed among hyperscalers this quarter has been unusually influenced by substantial contributions from equity stakes in private companies. Notably, Alphabet (GOOG, GOOGL) and Amazon (AMZN) recorded an astonishing $53 billion in "other income" for the first quarter, which accounted for nearly 60% of their combined income and 34% of the total $155 billion income generated by the five largest hyperscalers. This share represents the highest proportion of earnings attributable to "other income" seen in over a decade.
Delving further into this, it becomes evident that out of that $53 billion in "other income", a staggering $49 billion was tied directly to equity stakes in private firms. For instance, Amazon maintains a notable minority stake ranging from 15% to 20% in the AI startup Anthropic. Similarly, Microsoft (MSFT) holds about 27% of OpenAI’s for-profit arm following its restructuring announced in October 2025.
The fundamental message here is that such rosy projections of future earnings, particularly regarding relatively unproven private tech entities, may not last indefinitely. Investors are urged to focus closely on the operating profits of Big Tech, as these figures provide a clearer insight into their performance, both in relative and absolute terms.
In summary, while the current AI boom captivates the market’s attention, investors should remain vigilant about the underlying financial health of these tech titans. As the landscape evolves, it is critical to maintain a discerning eye on the sustainability of their earnings, particularly as they pertain to speculative investments in the private sector.
About the Author:
Brian Sozzi is the Executive Editor at Yahoo Finance, where he is part of the editorial leadership team. Connect with him on X, Instagram, and LinkedIn. For story tips, email: brian.sozzi@yahoofinance.com.
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