Alphabet reported a record $62.6 billion in quarterly profit. The stock jumped. Headlines celebrated. Wall Street cheered. But Fortune dug into the footnotes and found something that should make every investor pause: roughly $28.7 billion of that profit did not come from search ads, YouTube, Cloud, or any Google product. It came from Alphabet updating the paper value of its stake in Anthropic.

Nearly half. Of a record quarter. From a company Alphabet has not sold a single share of.

Amazon did the same thing. Its earnings release disclosed $16.8 billion in pre-tax gains from its Anthropic investment. That is more than half of Amazon's pre-tax income for the quarter. Amazon's $8 billion investment in Anthropic is now worth more than $70 billion on paper. Neither company has sold a share or received a dividend. These are unrealized gains, triggered by Anthropic's latest funding round setting a new price.

Here is where it gets circular. Alphabet and Amazon are among Anthropic's largest investors. When they pour more money into Anthropic, or commit to spending billions on cloud capacity for it, that pushes Anthropic's valuation higher. When Anthropic's valuation goes up, the stake they already own goes up with it. They book that increase as profit. In plain terms: the more they invest in Anthropic, the more profit they report, without Anthropic ever paying them a dollar.

Robert Willens, a Columbia Business School tax and accounting consultant, told Fortune: "It's interesting that they're able to control or influence the value of one of their own assets, and one that they're able to mark to market by engaging in business transactions with that entity." His diplomatic framing barely conceals the structural concern. Companies are reporting record profits partly by investing in each other and marking up those investments.

The accounting is legal. A 2018 FASB rule requires companies to mark private equity holdings to fair value when a new funding round establishes a price. When that rule was adopted, critics warned it would make earnings "unnecessarily volatile." Willens recalls: "Everyone said it would make earnings unnecessarily volatile. This, I suppose, confirms the fact that perhaps this wasn't the best idea FASB ever came up with."

The scale this quarter is what makes it unprecedented. Alphabet's $36.9 billion total equity gain is more than triple its previous peak. Combined, the four largest tech companies spent $130.65 billion on capital expenditure in Q1 2026 alone. That is more than three times the inflation-adjusted cost of the Manhattan Project, in a single quarter. They plan to spend $700 billion this year, roughly equivalent to the US government's Medicare budget.

And with Anthropic now reportedly in talks at a $900 billion valuation, the next markup could be even larger. The feedback loop accelerates: invest more, valuation rises, book the gain as profit, use that profit to justify more investment.

None of this means the AI business is fake. Google Cloud grew 28%. AWS revenue is up. Anthropic's own revenue reportedly jumped from $14 billion to $30 billion annualized in two months. Real products are generating real money. But when a company's record profit is substantially composed of paper gains on a private company it helps fund, and that private company has never been profitable, the word "record" deserves an asterisk.

Big Tech's AI earnings story is real. But it is also, in a very literal sense, about half real.

Sources: Fortune (Eva Roytburg), Alphabet Q1 2026 earnings release, Amazon Q1 2026 earnings release, Reuters, Investing.com, Bloomberg.