Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks, including changes to foreign currency exchange rates, interest rates, and equity price risk.
Foreign Currency Exchange Risk
We have foreign currency risks related to our revenue and operating expenses denominated in currencies other than the U.S. dollar, the majority of which is in Euro. Accordingly, changes in exchange rates, and in particular a strengthening of the U.S. dollar, have in the past, and may in the future, negatively affect our revenue and other operating results as expressed in U.S. dollars. See Management's Discussion and Analysis of Financial Condition and Results of Operations — Foreign Exchange Impact on Revenue section included in Part II, Item 7 of this Annual Report on Form 10-K for additional information.
We have experienced and will continue to experience fluctuations in our net income as a result of transaction gains or losses related to remeasuring monetary asset and liability balances that are denominated in currencies other than the functional currency of the entities in which they are recorded. Foreign currency transaction gains, net were $352 million for the year ended December 31, 2025 and foreign currency transaction losses, net were $690 million, and $366 million for the years ended December 31, 2024 and 2023, respectively.
Beginning in 2025, we use short-term foreign currency forward contracts for cash management to reduce, but not entirely eliminate, exchange rate impacts on foreign currency cash conversions. These contracts are not designated as hedging instruments. As of December 31, 2025, no such contracts were outstanding. Realized gains, losses, and forward points for 2025 were not material and recorded within interest and other income, net in the consolidated statements of income.
Interest Rate Sensitivity
Our exposure to changes in interest rates relates primarily to interest income and market value of our cash equivalents, marketable debt securities, and the fair value of our long-term debt.
Our cash, cash equivalents, and marketable debt securities consist of cash, time deposits, money market funds, U.S. government and agency securities, and investment grade corporate debt securities. Our investment policy and strategy are focused on preservation of capital and supporting our liquidity requirements. Changes in U.S. interest rates affect the interest earned on our cash, cash equivalents, and marketable debt securities, and the market value of those securities. A hypothetical 100 basis point increase in market interest rates would have resulted in a decrease of $711 million and $680 million in the market value of our available-for-sale debt securities and cash equivalents as of December 31, 2025 and 2024, respectively. Any realized gains or losses resulting from such interest rate changes and from the current unrealized gains or losses would only occur if we sold the investments prior to maturity.
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As of December 31, 2025 and 2024, we also had aggregate principal amounts of fixed-rate senior notes (the Notes) outstanding of $59.0 billion and $29.0 billion, respectively. Since our Notes bear interest at fixed rates and are carried at amortized cost, fluctuations in interest rates do not have any impact on our consolidated financial statements. However, the fair value of the Notes will fluctuate with movements in market interest rates, increasing in periods of declining interest rates and declining in periods of increasing interest rates.
Equity Price Risk
Our equity investments include marketable and non-marketable equity investments subject to equity price risks that could have a material impact on the fair value or carrying value of our holdings. Our marketable equity securities are publicly traded stocks and our non-marketable equity investments are investments in privately-held companies without readily determinable fair values.
We record marketable equity securities at fair value based on readily determinable market values, of which publicly traded stocks are subject to market price volatility and represent $5.99 billion and $1.23 billion of our investments as of December 31, 2025 and 2024, respectively. A hypothetical adverse price change of 10% on our December 31, 2025 balance would decrease the fair value of marketable equity securities by $599 million.
Our non-marketable equity investments accounted for under the measurement alternative are adjusted for changes in fair value resulting from observable transactions for identical or similar securities of the same issuer. Valuations of our non-marketable equity investments are complex due to the lack of readily available market data and observable transactions. Uncertainties in the global economic climate and financial markets could adversely impact the valuation of the companies we invest in and, therefore, result in a material impairment or downward adjustment in these investments. The carrying value of the non-marketable equity investments accounted for under the measurement alternative was $20.08 billion and $6.02 billion as of December 31, 2025 and 2024, respectively.
The carrying value of our non-marketable equity method investments was $7.45 billion and $52 million as of December 31, 2025 and 2024, respectively. These investments could be impaired if the carrying value exceeds the fair value and is not expected to recover.
For additional information, see Note 1 — Summary of Significant Accounting Policies, Note 4 — Financial Instruments, Note 5 — Non-Marketable Equity Investments, and Note 10 — Long-term Debt in the notes to the consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" and Part II, Item 7, "Management’s Discussion and Analysis of Financial Conditions and Results of Operations — Critical Accounting Estimates" contained in this Annual Report on Form 10-K.
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