Alphabet made history on Wednesday, reporting a quarterly profit that reached 12 figures for the first time. The parent company of Google saw its net income soar by 298% year-over-year to a staggering $112.1 billion. However, a closer look at the filing reveals that more than two-thirds of this windfall came from paper gains rather than core business operations.
The Multi-Billion Dollar Markup
Alphabet booked $99 billion in "unrealized and realized" gains from its investment portfolio during the second quarter. The primary drivers were the soaring valuations of SpaceX and Anthropic. SpaceX, which went public in early June, reached a valuation of $1.77 trillion, while Anthropic’s private-market valuation jumped from $350 billion to $965 billion in the same period. These massive paper gains accounted for $6.26 of Alphabet’s $9.11 earnings per share.
The Circularity Loop
The relationship between Google and Anthropic has raised concerns regarding financial circularity. Alphabet’s $13.3 billion investment in the AI startup is paired with a commitment from Anthropic to purchase at least five gigawatts of computing capacity from Google Cloud. This arrangement helped drive Google Cloud’s 82% growth clip. Critics note a loop: Google invests in Anthropic, Anthropic pays Google for computing, Anthropic’s valuation climbs, and Google books that climb as earnings.
Market Reaction and Rising Costs
Despite the record-shattering profit, Alphabet shares fell 3% in after-hours trading. Investors expressed concern over the company’s rising capital expenditures, which Alphabet increased to a range of $195 billion to $205 billion for 2026. Additionally, fierce competition surrounding the Gemini AI models continues to weigh on investor sentiment despite the impressive bottom-line figures.
