00:04:26 · John Coogan, Jordi Hays
[00:04:26] S1: I I think this is a beat on the expectations of the s one. [00:04:29] S0: Well, he's doing the old command f. Command f. He has the command f. Right? [00:04:33] S1: Command f bad. Command f sad. Command f problem. The Nasdaq is up 1%, and it feels like the AI trade is starting to like get put back on. Obviously, there's been a lot of a lot of selling in the further risk on the further out on the risk curve assets in the AI trade. Some of the neo cloud's down a lot. But if you look into what Anthropic's doing, it seems like they're going to be buying a lot of compute from Neo Clouds. Like there's this interesting thing where they raised a $110,000,000,000. They have a $130,000,000,000 in cash. How much did they spend in the first half of the year on CapEx? Right? This is the company that wants to serve AI at scale and how much do they actually spend buying computers, building computers that they own? $482,000,000. Less than $500,000,000. I mean, now, of course, over time, they'll build more. They'll do all sorts of stuff. [00:05:32] S0: Yeah. They've been renting [00:05:33] S1: at in the first half of the year, the strategy has been to rent. And then also, they have a pretty huge amount of backlog with the the hyperscalers. And it looks like this scary number. I think it's $690,000,000,000 of commitments. Really not that much, 10 x of of revenue currently if they scaling. [00:05:53] S0: But over a multi year period.
00:05:56 · John Coogan
[00:05:56] S1: Yeah. Yeah. So there's there's Google Google, Amazon, and Microsoft are all in the forty to a hundred and thirty billion dollar range. I can pull up the exact numbers, but the but the contracts are how much that they have to spend on compute through 2033. Some of them go all the way out to 2036, which is really, really, really far. So they have a lot of time to actually work through that. So Google Cloud, commitment is a $114,500,000,000 and that's minimum cloud spending through July 2033. So they're just renting and it's over a long period of time. Is there any scenario where they don't have the demand to actually parcel out 20,000,000,000 of spend over the next six years, seven years? It seems like they're in a good position there. AWS is a 110,000,000,000 and that's stretched out to 2,036. And then Azure is only 45,000,000,000 and that's minimum cloud spending through 2033. Now they do have a 120,000,000,000 with SpaceX AI. That's up to, that's the maximum and then n scales at 45, lambdas at 42,000,000,000 Broadcom's at a 161,000,000,000 for a total of 637,000,000,000 in spending commitments. But again, over five, six, it may be eight years in some of these scenarios. So pretty pretty healthy there. The other interesting surprises, I mean people are pretty happy about the margins. So compute cost as a function of revenue, they were at 72%. You can think about this as like cost of goods. 72% of every dollar they made was getting eaten up by compute costs. That's down to 48 compute costs divided by revenue. So that's rapidly improving efficiency quarter on quarter. Then the adjusted operating margin gained 32 percentage points quarter on quarter for almost $1,000,000,000 in GAAP profit. They went from negative 13% to 19% operating margin. And then the big number that is that people are excited about is the big customers. So they have, I think, over a thousand customers spending over $1,000,000, something like that. And then...
00:08:12 · Jordi Hays, John Coogan
[00:08:12] S0: Over 10,000 spending over a 100 k. [00:08:14] S1: Over... Yeah. Over 10,000 spending a 100 k. And net revenue retention is 900% on those. So they got in early in 2024, 2025. And then all of those companies scaled up. So maybe they had a smaller subscription, smaller. They were using the APIs here and there. And then we went to the token maxing era. They were in the right place. And so many companies scaled their spend that on average, it was basically a 10x increase Yeah. For organizations. But that makes sense. We've all seen this as, you know, more and more people are like, Hey, it's not just like the early adopter on the team that has an AI agent running all the time. It's actually spread to everyone. It's spread to the marketing organization, the operations teams using it. And so these services are going out all over the place. They have more than half of the Fortune five hundred spending over a $100,000 annually. That actually felt low to me. Obviously, it's really impressive. Like, it's great. But I'm sort of... Like, I I was under the assumption that all of the Fortune five hundred was spending a lot on, like, every single model. Yeah. And I would have said, oh oh, of the Fortune five hundred, 100 k annually. The Fortune five hundred is probably spending 100 k annually on open source models and OpenAI and Google and Microsoft and Anthropic. Like, I [00:09:28] S0: would Got to ask assume what what that half is, what they're up to.
00:09:28 · Jordi Hays, John Coogan
[00:09:28] S0: would Got to ask assume what what that half is, what they're up to. [00:09:31] S1: I mean, some of them might just be in industries that don't write any software really. But it feels every company in the... If you're in the Fortune 500, you have It's some [00:09:40] S0: kind of bearish anywhere anywhere you put it. [00:09:42] S1: It is... Do know I do know... [00:09:44] S0: I was... This was maybe six months ago, but I was talking to someone at a Fortune... Relatively high up at a Fortune 500 and they said that they had... They were basically running like boilerplate Gemini that like the whole the whole org had access to and that was like their AI tool. Were telling everyone, just use this. Yep. And so there's there's I'm sure examples of that.
00:09:44 · Jordi Hays, John Coogan
[00:09:44] S0: I was... This was maybe six months ago, but I was talking to someone at a Fortune... Relatively high up at a Fortune 500 and they said that they had... They were basically running like boilerplate Gemini that like the whole the whole org had access to and that was like their AI tool. Were telling everyone, just use this. Yep. And so there's there's I'm sure examples of that. [00:10:09] S1: Yeah. Yeah. Yeah. Just... And so yeah, maybe maybe you see like 50% has spending over 100 k on Anthropic and then there's some there's some slice that's on OpenAI, some slice on Gemini and Google and then some slice on some other section of the market. But I mean, it's odd because like even Meta who has their own is probably spending over over 100 k annually on Anthropic. I have to imagine that that Google employees, some of them have access to Anthropic models to the tune of 100 k. And so that was sort of interesting. The other interesting update was on the distillation revenue. So coming out of the Investor Day, it felt like we finally got a number on how much of this revenue is distillation, how much of it might go away if Anthropic figures out how to prevent distillation. And the number that was floated was five to 7%. Totally reasonable. It was not like a it's over moment. It was like, oh, like that's significant. It's crazy that companies that these that these distilleries are I don't know if that's the right word, but we're gonna go with it. That these distilleries are are willing to spend like 5% of $70,000,000,000 ARR.
00:10:09 · John Coogan, Jordi Hays
[00:10:09] S1: Yeah. Yeah. Yeah. Just... And so yeah, maybe maybe you see like 50% has spending over 100 k on Anthropic and then there's some there's some slice that's on OpenAI, some slice on Gemini and Google and then some slice on some other section of the market. But I mean, it's odd because like even Meta who has their own is probably spending over over 100 k annually on Anthropic. I have to imagine that that Google employees, some of them have access to Anthropic models to the tune of 100 k. And so that was sort of interesting. The other interesting update was on the distillation revenue. So coming out of the Investor Day, it felt like we finally got a number on how much of this revenue is distillation, how much of it might go away if Anthropic figures out how to prevent distillation. And the number that was floated was five to 7%. Totally reasonable. It was not like a it's over moment. It was like, oh, like that's significant. It's crazy that companies that these that these distilleries are I don't know if that's the right word, but we're gonna go with it. That these distilleries are are willing to spend like 5% of $70,000,000,000 ARR. [00:11:20] S0: It's way less than some of the the peanut gallery on X would like to say. Yeah. Half their revenue. Half