TL;DR — Alphabet’s Q2 2026 net income hit a record $112.1 billion, but $77.1 billion of it, after tax, came from marking up its Anthropic and SpaceX stakes to fresh funding-round prices, not from search, cloud or YouTube. Free cash flow went negative $5.9 billion the same quarter, and in April Alphabet had already committed up to $40 billion more into the company generating the paper gain.
Alphabet’s second-quarter net income came in at $112.1 billion, up 298% year over year, a number that made headlines across the market. What got less attention: $99 billion of unrealized and realized gains on equity securities flowed through the income statement that quarter, contributing $77.1 billion to net income after tax. That’s $6.26 of Alphabet’s $9.11 in earnings per share, roughly two-thirds of the total, and it came almost entirely from marking up two private stakes: Anthropic and SpaceX. In the same quarter, free cash flow went negative $5.9 billion.
How a Private Stake Turns Into a Quarterly Profit
Under the accounting standard that took effect in 2018 (ASU 2016-01), companies holding equity stakes in private firms have to update those stakes’ carrying value whenever a new funding round sets a fresh price. Alphabet doesn’t have to sell a single share to book the gain. It just has to watch someone else buy in at a higher number.
That’s exactly what happened twice in one quarter. SpaceX went public in June at a $1.77 trillion valuation, and Anthropic’s valuation jumped from $350 billion in April to $965 billion by the end of June. Alphabet’s 10-Q now carries its non-marketable equity securities, overwhelmingly the Anthropic stake, at roughly $124.3 billion, and its SpaceX position at $94.1 billion. Tax consultant Robert Willens, describing the mechanism generally, called the resulting earnings volatility something regulators “worried” about when the rule was first adopted, adding dryly that it “perhaps wasn’t the best idea” the Financial Accounting Standards Board ever came up with.
The mark-ups haven’t been one-off, either. Alphabet’s Anthropic-linked gains went from $8 billion in the first quarter of fiscal 2025 to $10.7 billion in the third quarter, then $36.9 billion in the first quarter of 2026, and now the still-larger figure behind this quarter’s $77.1 billion after-tax total. Each markup has gotten bigger than the last.
The Circular Part
Here’s where it gets self-referential. Google Cloud supplies Anthropic with TPU compute under a series of expanding deals, including an agreement for up to 1 million TPUs and well over a gigawatt of capacity that Google Cloud CEO Thomas Kurian said reflects “the strong price-performance and efficiency” Anthropic’s teams have seen with TPUs. In April, separately, Alphabet committed up to $40 billion directly into Anthropic: $10 billion in cash immediately at the $350 billion valuation, with another $30 billion contingent on performance milestones, plus 5 gigawatts of TPU-based compute capacity over five years, on top of a 3.5-gigawatt Broadcom-partnered commitment starting in 2027.
Anthropic uses that capital and compute to keep building. Its valuation climbs at each funding round, partly because more capital is chasing the same company. Alphabet then marks its own stake up to match, and books the difference as profit, before a single additional dollar of Claude subscription or API revenue has actually changed hands. Anthropic CFO Krishna Rao framed the compute side as necessity, not largesse: the expanded capacity, he said, “ensures we can meet our exponentially growing demand while keeping our models at the cutting edge.”
Google invests in Anthropic, Anthropic pays Google for computing, Anthropic’s valuation climbs, and Google books the climb as earnings. Then Google invests more.
What the Paper Gain Doesn’t Change
None of this touched Alphabet’s cash position the way it touched net income. Free cash flow was negative $5.9 billion in the same quarter Alphabet reported the $112.1 billion profit, a function of the same TPU infrastructure buildout this piece has tracked repeatedly this earnings season. The $40 billion Anthropic commitment sits on top of that capex, not instead of it. A markup on a private stake can inflate the earnings-per-share number Wall Street headlines the next morning; it cannot pay a cloud region’s power bill.
- Net income: $112.1 billion, up 298%, with $77.1 billion after-tax from equity markups.
- Free cash flow: negative $5.9 billion, same quarter.
- New Anthropic commitment: up to $40 billion, announced three months before the markup showed up in earnings.
Anthropic is reportedly weighing an IPO as soon as October 2026. If that happens, the private funding-round pricing that has driven three straight quarters of escalating Alphabet markups gets replaced by a public market price that can go down as easily as up, on a stake now large enough to move Alphabet’s own reported earnings by tens of billions of dollars a quarter either way.
Figures in this piece are drawn from Alphabet’s second-quarter 2026 Form 10-Q, filed with the SEC, Alphabet’s investor relations site, and reporting from Fortune and Data Center Dynamics on the compute deals. Third Pole Markets holds no position in Alphabet or Anthropic as of publication; our About page covers the full disclosure policy.
