Tech Giants’ Profits Reveal Potential Vulnerability in the Stock Market

Investment gains at Alphabet and Amazon reveal a new way in which technology companies’ fortunes are increasingly linked.

Tech giants like Amazon and Alphabet have powered the stock market to record highs in recent years, fueled by the growth of their artificial intelligence and cloud computing businesses.

But in recent months, a big driver of those two companies’ profits came from an unusual source: The increasing value of their investment stakes in artificial intelligence companies.

Over 70 percent of Alphabet’s net quarterly income came from investments in other companies, and in particular, in Elon Musk’s SpaceX, according to a recent regulatory filing and analysis from Satori Insights, a financial markets research firm. SpaceX went public in June in the biggest initial public offering ever.

Investment gains also accounted for roughly 65 percent of Amazon’s net income, largely stemming from its stake in Anthropic, a leading A.I. start-up that is also planning to go public.

Those gains underscore a growing vulnerability in the broader stock market: The companies that keep pushing the market higher are increasingly dependent on each other’s success.

“It’s circular,” said Matt King, founder of Satori Insights. “What’s funding A.I. is now increasingly more A.I.”

Worries about the circular nature of the A.I. boom have persisted for some time, as investors have watched the dominant tech giants, chipmakers and A.I. labs invest in or loan each other money. That money is often then used to buy products or cloud services from the same companies funding them.

A.I. executives have defended these circular financing models. Sam Altman, the chief executive of OpenAI, has described the deals as a creative way to free up the capital needed to supercharge innovation at a time of rapid change.

But the investment gains at Alphabet and Amazon show how these companies’ fortunes are increasingly linked. They also point to the increasing interconnectedness of the stock market and the broader economy: A.I. is powering growth in both, making the threat of a stock market tumble an even greater concern for policymakers.

“The stock market was never just a reflection of the economy, but it’s now become one of the economy’s main engines,” said Mr. King.

- Author: Joe Rennison, The New York Times

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