The Dirty Accounting Behind The AI Bubble

Submitted by QTR's Fringe Finance

I’ve been arguing for months that the AI boom has become an increasingly circular exercise in which enormous amounts of capital are being thrown around, valuations are being inflated, and the financial system is becoming more dependent on the assumption that the whole thing will continue indefinitely.

I’ve also argued that at some point between now and Q2 2027, I expect a crash.

Yesterday, The Wall Street Journal pointed out another particularly ridiculous, if not outright devastating feature of this arrangement: the accounting behind the AI boom is now helping inflate the reported earnings of the companies financing it.

Specifically, Jonathan Weil highlighted the extraordinary accounting gymnastics surrounding Anthropic’s upcoming IPO, including the company’s eye-watering $80.7 billion GAAP net loss for the first half of 2026.

As it turns out, much of that loss wasn’t the result of Anthropic lighting $80 billion in cash on fire. Rather, it came from marking up the value of convertible debt and other financial instruments as the company’s private valuation skyrocketed. In other words, as Anthropic became more valuable, the liabilities tied to its financing became more expensive on paper.

Fair enough. These are largely noncash accounting adjustments, and there’s a reasonable argument for excluding them when trying to understand the company’s underlying operations.

But here’s where things get interesting. While Anthropic is excluding those paper losses to report a $2.7 billion adjusted profit, Amazon and Alphabet are getting credit for enormous paper gains on the other side of these same investments...(READ THIS FULL ARTICLE 100% FREE HERE).