AI Summary
5 min readIn the wake of Big Tech earnings, the surface numbers looked stellar: Microsoft reported $90 billion in revenue, up 18%; Amazon hit $200 billion, up 20%; Meta grew 28%. But beneath the headlines, Ed Elson and Ed Zitron argue, something far more troubling is hiding. The AI trade that has driven the market for two years may be built on an illusion—one where the biggest customers of the largest cloud providers are also the companies those providers are keeping alive with cash infusions. The real question, they say, is not how much AI revenue these companies generated, but how much of it came from just two financially unstable firms: OpenAI and Anthropic.
The Earnings Mirage
The most immediate problem is that the reported earnings for Amazon and Google are not what they seem. Amazon's net income exploded 245%, and Google's jumped 298%. But digging into the filings reveals a startling fact: 85% of Amazon's net income came from unrealized gains on its stakes in Anthropic and OpenAI. For Google, 87% of earnings came from unrealized gains in Anthropic and SpaceX. These are paper profits—mark-to-market accounting that reflects the soaring valuations of AI startups, not the underlying health of the core businesses.
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What you'll learn
- 1 (02:12) **The Earnings Surface: Strong Growth, But What’s Hidden?** - Ed Elson and Ed Zitron set up the episode by noting that the headline numbers from Microsoft, Amazon, and Meta look great, but the real questions about AI revenue are being dodged.
- 2 (05:47) **The Skewed P/E Multiple** - The host explains how these paper gains distort a core valuation metric, making these stocks appear deceptively cheap.
- 3 (09:33) **The Microsoft Accounting Trap vs. The Amazon/Google Loophole** - A breakdown of why Microsoft couldn't inflate its earnings from its OpenAI stake, revealing a key accounting distinction.
- 4 (11:12) **The Vanishing AI Revenue Metric** - The host points out that Microsoft quietly stopped reporting its annualized AI revenue run rate, a classic sign of obfuscation.
- 5 (15:10) **Meta's Unanswered ROI Question** - The discussion shifts to Meta, where analysts are finally asking tough questions about its massive AI spending.
- 6 (18:28) **The Customer Concentration Scandal** - The host reveals the central, "insane" finding: the vast majority of big tech's AI revenue comes from just two unstable companies.
- 7 (24:52) **The Circular Financing Scandal** - The guests solidify the argument that this isn't just a business risk but a potential corporate scandal.
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Guests on this episode
Show Notes
In this week's Better Offline, Ed is joined by Prof G Markets’ Ed Elson to talk about the recent slew of tech earnings, how analyst estimates show that 70% of Microsoft, Google and Amazon’s AI revenues come from OpenAI and Anthropic, and the logical endpoint of his AI bubble thesis.
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