The Market Is Eating Itself

The largest companies in the world have just reported, and between them they have printed some of the best numbers in their histories. Alphabet nearly quadrupled its profit, Amazon tripled its own, and Meta grew revenue by 28 percent while earning less money than it did a year ago.

Follow the money through those results and it runs in a circle. One company's capital spending is the next company's revenue, that revenue funds the AI labs, the labs spend it on chips, and the chip maker turns around and buys cloud capacity back from the companies it has just sold to. At the end of the loop the whole arrangement is marked up and booked as profit.

Very little of it moves as cash at any point along the way.

Meta spends

Meta has signed $349.31 billion of contracts it cannot cancel, most of them for third-party cloud capacity, and it discloses the figure in a risk factor rather than anywhere in the accounts.

That number is a cost to Meta and future revenue for Microsoft, Amazon and Google, which is the first turn of the circle. In the same quarter Meta sold more advertising than in any quarter of its history and earned less money doing it.

The clouds collect, then lend it back

Microsoft, Amazon and Google sell the capacity that Meta and everyone else is committing to, and they also fund the customers who buy it.

Satya Nadella's Microsoft booked $24.1 billion of revenue from OpenAI in fiscal 2026 and was still owed $6.0 billion of it at year end, having funded $11.9 billion of a $13.0 billion commitment. It owns roughly a quarter of OpenAI on an as-converted basis, which is enough to make its largest AI customer a related party.

Microsoft also booked a $6.5 billion net gain on that stake, against a $4.8 billion loss the year before, and the filing attributes the swing primarily to dilution from the OpenAI recapitalisation. The company recorded a profit, in other words, because its share of OpenAI got smaller.

Amazon has committed $15 billion to Anthropic and serves as its primary cloud provider, while Alphabet committed up to $40 billion in April, $10 billion of it upfront, and hosts Claude as well.

Nvidia sells the chips, then buys the capacity

The labs spend that money on chips, and Nvidia puts a great deal of the proceeds straight back into the market it has just sold into.

Its book of private stakes grew from $3.39 billion to $43.36 billion in fifteen months, investment commitments now stand at $27 billion against $6.5 billion two quarters earlier, and it has signed $30 billion of multi-year cloud purchase commitments, buying capacity from companies that are themselves its customers.

Three direct customers account for 21, 17 and 16 percent of revenue, and Nvidia names none of them. Jensen Huang said in March that the $10 billion Nvidia put into Anthropic and the $30 billion it put into OpenAI were likely its last investments in either company, because both were heading for public markets.

The circle closes as profit

Alphabet reported net income of $112.2 billion for the June quarter against $28.2 billion a year earlier, and while operating income grew a healthy 30 percent, gains on equity securities came to $99.0 billion.

Amazon reported $62.6 billion against $18.2 billion, driven by a $50.5 billion markup on its Anthropic stake, with a further $42.0 billion running through other comprehensive income where it never reaches earnings per share at all.

Neither company has sold any part of what it marked up, and neither is required to before booking the gain.

How a markup becomes profit

The accounting rules allow this. Under ASC 321 a company holding a private stake may carry it at cost until an observable transaction occurs, which Alphabet describes in its own filing as observable transactions for identical or similar investments of the same issuer.

Somebody else buys at a price you had no part in setting, and you book the difference as profit.

The transaction that mattered this quarter was Anthropic's Series H, announced on 28 May 2026, which raised $65 billion at a $965 billion valuation against the $380 billion the company had been priced at in February. Ten investment firms agreed that price in a private negotiation, and it flowed from there into the reported earnings of two of the largest companies in the S&P 500.

None of the parties around that price were strangers to the company being priced.

Alphabet booked a gain on shares it cannot sell

SpaceX listed on Nasdaq on 12 June 2026, eighteen days before Alphabet's quarter ended, and Alphabet held $94.1 billion of it at the close, $14.1 billion of which is restricted until the second half of 2027.

The gain sits in this quarter's earnings even though the shares behind part of it cannot be sold for another year.

The cash went the other way

Record profits arrived in a quarter when the money was moving in the opposite direction. Alphabet generated $39.1 billion of operating cash and spent $44.9 billion on capital expenditure, while Amazon's free cash flow over the past year was negative $7.6 billion against positive $18.2 billion a year earlier.

What would settle it

Three disclosures would close the gap, and none of them are required today: a breakdown of the gain on equity securities by issuer, the identity and date of the transaction that triggered each remeasurement, and, where a company marks up a stake in a business it also sells to, the money running in both directions.

Until then, the arithmetic belongs to the people who set the price.

Cover photograph: Nvidia headquarters, Santa Clara (opens in a new tab) by Coolcaesar, via Wikimedia Commons, licensed CC BY-SA 4.0 (opens in a new tab). Cropped and resized from the original.