Alphabet Inc. Class C (GOOGL.US) holdings of Anthropic stock surged to a valuation of $124 billion, helping to push second-quarter profits past the $100 billion mark.

Alphabet Inc. Class C's parent company Alphabet (GOOGL.US) is making a bet on AI star startup Anthropic, and the unprecedented returns on paper are shaking Wall Street. According to regulatory filings, the value of Alphabet's stake in Anthropic has soared to around $124 billion, making it one of the most profitable investments in the company's history, and directly contributing to its net profit exceeding $100 billion in the second quarter for the first time. Alphabet disclosed in its quarterly filing submitted on Thursday that, as of June 30, its total investment in unnamed private companies is approximately $124.3 billion. An insider revealed that this astronomical figure is "mainly" driven by a single investment in Anthropic. The filings also show that Alphabet recorded unrealized gains of around $77 billion from private investments in the second quarter, but did not disclose further details. This huge paper wealth comes from Alphabet Inc. Class C's continued investment in Anthropic. Starting in 2023, the tech giant began injecting an initial $3 billion into Anthropic. Earlier this year, Alphabet Inc. Class C agreed to add up to $40 billion in new investments, including $10 billion in initial funding, as well as up to $30 billion in follow-up funds by 2030, depending on operational and financial milestones. The filings on Thursday further indicate that the remaining amount of these additional commitments has decreased from $30 billion at the end of the first quarter to $20 billion at the end of the second quarter, suggesting that Alphabet Inc. Class C invested around $10 billion into Anthropic in the just-ended quarter. Currently, Anthropic has rapidly emerged as a major competitor of OpenAI in the development of cutting-edge AI models, attracting bets from giants like Alphabet Inc. Class C and Amazon.com, Inc. (AMZN.US). The company is preparing for its highly anticipated initial public offering, which could possibly take place as early as October this year. During the second quarter, Anthropic's private market valuation skyrocketed from $350 billion to $965 billion, bringing significant unrealized gains to Alphabet's investment portfolio. This investment has also contributed to Alphabet's most profitable quarter in history. The company's financial results announced after U.S. market close on Wednesday showed a 298% year-on-year surge in net profit to an astonishing $112.1 billion in the second quarter, crossing the $100 billion mark for the first time. Quarterly revenue increased by 24% to $119.8 billion, with Alphabet Inc. Class C's cloud business growing at a rate of 82%, CEO Sundar Pichai citing this as proof that the company's "full-stack AI strategy is delivering real, measurable value." However, what truly pushed profits to record levels was the "other income" beyond the core business. The financial reports indicate that Alphabet recorded approximately $99 billion in equity investment income, including realized and unrealized gains, contributing about $77.1 billion to after-tax net profit, or $6.26 of the $9.11 earnings per share. This windfall mainly came from investments in the AI sector, especially Anthropic, and Alphabet's 6% stake in SpaceX, a space exploration company. SpaceX went public in early June with a valuation of $1.77 trillion, far exceeding its $400 billion valuation as a private company a year ago, also generating substantial gains. Behind these dazzling profits, however, lies a mutually reinforcing network that raises questions about its sustainability. Alphabet's capital has driven up Anthropic's valuation; at the same time, Anthropic commits to purchasing at least five gigawatts of computing power from Alphabet Inc. Class C cloud - roughly equivalent to the power output of five nuclear reactors, enough to meet the electricity needs of about four million households. This expenditure flows directly into Alphabet Inc. Class C's cloud business, fueling the highly publicized 82% cloud growth. Capital circulates within the same ecosystem: Alphabet Inc. Class C invests in Anthropic, Anthropic pays computing fees to Alphabet Inc. Class C, Anthropic's valuation rises, and Alphabet Inc. Class C then counts the increased valuation as profit. Tax and accounting advisor Robert Willens commented on this, saying, "It's interesting how they can control or influence the value of one of their assets." As early as April this year, a small-scale upward adjustment in Anthropic's valuation contributed nearly half of Alphabet's first-quarter profit, attracting attention at the time. Despite record-breaking performance numbers, investors' reactions have been relatively calm. As Alphabet raised its planned capital expenditures for 2026 to a range of $195 billion to $205 billion, higher than the previous estimate of $180 billion to $190 billion, and amid increasing competition faced by its Gemini series AI models, the company's stock price fell over 7% on Thursday.