AI Gains or Accounting Games? Inside Amazon & Alphabet’s growing profit
If you remove just one ingredient, the recipe tastes very different - swap out the Anthropic seasoning and watch EPS and narrative all change flavor.
Actually, I didn’t want to write my own article on last week’s Big Tech quarterly figures. After all, there are hundreds of authors who regularly comment on the hyperscalers’ results. Even the mainstream media are writing about Microsoft, Alphabet and Amazon shares, which have enabled inexperienced private investors to make unimaginable profits in recent years.
I don’t usually need to add my two cents to that. Instead, I usually focus on my ‘undercovered’ small caps where I can add real value to the readers.
However, after reading dozens of comments on the recent Big Tech earnings, I feel compelled to highlight one significant issue that 99% of commentators seem to overlook or ignore.
I am referring to the alarming decline in earnings quality, particularly at Amazon, but also at Alphabet.
Amazon after Q3 2025
Amazon’s (AMZN 0.00%↑) share price experienced its biggest jump in over 10 years after the release of the Q3 quarterly figures, with market capitalisation rising by over $300 billion following the announcement!
The reason for this was not only the impressive revenue growth of the cloud subsidiary, AWS, but also the 38% increase in net profit, which jumped from $15.3 billion to $21.2 billion. This jump in profits suggested to investors that profitable growth was still possible in the AI age, which catapulted the stock to a new all-time high.
However, Amazon’s positive earnings performance in Q3 was based solely on a multibillion-dollar write-up of the high value of an AI company that is itself racking up billions in losses.
Adjusted for this special effect, Amazon’s “real” earnings per share did not rise by +36% in Q3, as reported, but rather fell by double digits.
Alphabet after Q3 2025
Alphabet shares also rose to a new all-time high after the Q3 figures were released, making Alphabet the second big winner of the Big Tech quarterly season.
Alphabet experienced a similar special effect that significantly boosted profits, leading to a +35% increase in earnings per share.
But when we look at the “real” profit, without the attribution, Alphabet’s EPS growth shrinks from +35% to a mere +4%.
This special effect doesn’t sound insignificant, does it?
I don’t even want to imagine how the stock market would have reacted if, after this quarter, the headlines had correctly reported a decline in profits at Amazon and a significant decline in Alphabet’s profitability. I estimate that Amazon’s market capitalization would be $500 billion lower today.
I wonder why this important detail did not dominate the headlines of the big tech quarterly coverage. Are the authors really that superficial? Or are these masses of articles on Big Tech now mostly written by AI that isn’t so intelligent without a good “prompt engineer” at the helm?
This makes it all the more important to me to break down Amazon’s, Alphabet’s, and Microsoft’s impressive-looking quarterly profits once again. In this article, I aim to clarify that the impressive profit growth of Big Tech in the past quarter is primarily due to top-notch financial engineering and another milestone in the AI bubble rather than profitable growth based on AI adoption.
So let’s take a closer look:
