Both tech giants posted eye-popping quarterly profits, but a closer look reveals how much of that windfall came from paper gains on Anthropic rather than core operations
Amazon and Alphabet just posted some of the most impressive quarterly numbers in their histories. Amazon’s Q1 2026 net income hit $30.3 billion. Alphabet’s total quarterly profit reached a record $62.6 billion.
The Anthropic effect #
Of Amazon’s $30.3 billion in Q1 2026 net income, roughly $16.8 billion came from the revaluation of its stake in Anthropic. That’s more than half of the total, generated not by shipping packages or running AWS workloads, but by the rising valuation of an AI startup.
Alphabet’s story is similar. The company recorded approximately $28.7 billion in unrealized gains for the same quarter, largely driven by its own Anthropic holdings. Those mark-to-market gains were a key driver of the $62.6 billion record profit.
When more than half of your net income in a given quarter comes from unrealized gains on a single investment, it raises fair questions about the durability of those earnings.
The circular economy of AI spending #
Anthropic spent $2.66 billion on AWS from January to September 2025. Amazon invests in Anthropic, Anthropic spends heavily on Amazon’s cloud infrastructure, and Amazon books both the cloud revenue and the paper gains from Anthropic’s rising valuation.
AWS revenue grew 28% during Q1 2026. But free cash flow declined sharply during the same period, squeezed by the sheer scale of infrastructure buildout.
The $344 billion question #
Amazon projects its capital expenditures for 2026 will reach approximately $200 billion. Cumulative spending through 2027 is estimated at $344 billion. To put that in perspective, $344 billion is roughly the GDP of Denmark.
The declining free cash flow at Amazon is an early signal worth watching. Revenue growth of 28% is strong, but if the cost of generating that growth outpaces the revenue itself, margins compress.
What this means for investors #
The core risk here is one of duration mismatch. Amazon and Alphabet are making long-duration bets, building data centers and AI infrastructure that will take years to fully monetize. But their quarterly earnings are being inflated by short-duration paper gains on Anthropic’s valuation, which could reverse in any given quarter.
Strip out the Anthropic revaluation gains, and Amazon’s Q1 operating performance tells a different story than $30.3 billion in net income suggests. The same applies to Alphabet’s $62.6 billion quarter.
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