Logan

I don't think people are paying enough attention to this section of Anthropic's S-1. They're telling us they're going to build their own data centers. This dramatically changes the entire business.

My initial S-1 thoughts: As I expected, Anthropic is still firmly unprofitable. But, to their credit, they've significantly reduced compute costs as a % of revenue, leading to much narrower losses. On first look, there is a plausible and imminent path to profitability. This is impressive. However, the meat of the document begins at page 161, under "liquidity and capital resources." There, we learn where the true compute costs have been hiding: future compute purchase agreements. As of June 30, Anthropic has signed roughly $587 billion in compute leases and minimum purchase commitments that haven't begun. It has since signed $245 billion more, resulting in more than $800B in future compute costs. None of these costs have made their way onto the income statement yet. But they will, and when they do, the profitability picture will look completely different. Anthropic acknowledges how precarious these agreements are. They point out that their compute providers (on whom they also rely for financial support) also sell services that "compete with ours." As a result, these providers/competitors may eventually force them into onerous agreements. This is something I've expressed concerns about for a while, and it's nice to see Anthropic openly recognize it. That's why Anthropic admitted their most significant strategic decision: They're about to initiate "substantial capital expenditures." So far, they've spent zero. Why the change? Because they know they can no longer rely on leasing compute, "the magnitude and timing" of which are "inherently uncertain." So, they're going to build their own compute, which will, in their words, "change the cash flow profile of our business." I.e. make it severely negative. It's possible that this is why they want to go public now. Since these costs have not yet "come online," they can be left as footnotes at the bottom of the document. But very soon, that won't be possible. In sum, Anthropic's income statement is not telling you the full picture. To the company's credit, they spared us the accounting gymnastics of stripping out training costs in their non-GAAP adjustments. That would have been offensive. Still, the most important numbers aren't getting the requisite attention. I encourage you to start at page 161 for a more complete understanding of what's going on.