economy
Why strong corporate earnings may not be quite what they appear
Strong profits can justify the stock market's ability to continue to climb, but paper gains can distort the picture.
TL;DR
- Q1 corporate earnings reports showed strong numbers, contributing to a climbing stock market.
- The S&P 500 is up significantly since late February and near record highs.
- However, there are questions about whether these earnings are inflated by AI boom 'animal spirits'.
- Alphabet, Amazon, and Meta showed unusually large contributions to profit from outside core businesses.
- Alphabet's profit included a $37.7 billion windfall from rising value of investments, possibly in Anthropic.
- Amazon's profit included a $16.8 billion accounting windfall from its investment in Anthropic.
- Meta reported an $8 billion gain from a nonoperating tax benefit.
- These non-operating gains are substantial compared to established companies' full-year profits.
- A sharp fall in AI asset values could reverse these paper gains, impacting equity markets.