Prof G Markets
00:09:27 · Ed Elson, John Foley
[00:09:27] S4: Just looking at their their compute costs, in the current quarter. So, you know, in the first quarter of twenty twenty six, it was 3.3 or almost $3,400,000,000. The next quarter, it was $5,600,000,000. This quarter, it was $9,900,000,000. So it's getting progressively larger, but also the revenue is expanding dramatically as well, which makes you think, oh, it's okay. But, I mean, it seems as though these compute commitments that are coming down the line are going to absolutely balloon the compute costs. The quarter on quarter growth rates for revenue has fallen to something like 47, 48%, in these latest q three numbers, but the quarter quarter on quarter growth in compute costs went up almost 80%. So at the [00:10:12] S5: moment, that's increasing more quickly than the revenue. [00:10:15] S4: It seemed as though when the IPO came... The... When the original filing was... Came out, you know, there was a lot of, I would say, sighs of relief at the fact that their operating losses had come down so dramatically from last year. It came down to something like $700,000,000 negative operating loss. And the previous year, was more than $2,000,000,000 in that same period. It seems as though it's going to continue to go up. I guess the question becomes, do we actually think that this company is going to become profitable in the near future? Is it actually going to be profitable in 2027? Which I think was something that a lot of people seemed to believe coming out of that first filing? I wasn't sure of it myself. But what do you think?
00:11:00 · John Foley
[00:11:00] S5: In the second quarter, they, on an operating level, had achieved a positive profit, I think, and that's now swung back to a loss. So... And and then on an accounting basis, their loss is obviously huge because they have this sort of bizarre non cash paper loss based on the value of securities and derivatives that they've issued. So like predicting when it gets profit is also again really hard. Like I sort of feel like I'm abdicating my responsibility as a financial journalist and someone who analyzes stocks by saying that you just... It's just who knows. But I really do feel with this company is you are being asked to predict things that are impossible to predict. You could argue that this company doesn't really belong in the sort of sausage casing of a traditional public company because these things are so variable. But here we are. I think ultimately, Anthropic will tell us what it thinks it's worth and and we will pay it or we will not depending on whether we think that Anthropic is gonna be one of the winners. But like... But in terms of are they gonna achieve an operating profit? Well, you'd hope so. If they're if they're cash burning, then they have to find the cash somewhere else. They have to plug that gap elsewhere. One option is by doing it through debt, but as we've heard, they may not have an investment grade credit rating, which will make that more expensive and more difficult. The other is to just keep raising more equity, maybe a bit of both. So there there is gonna be a lot of pressure on them to show that they can be self sustaining from a cash flow perspective. And at the moment, they are not.
00:12:23 · Ed Elson
[00:12:23] S4: Yeah. It seems as though, I mean, they're gonna go out and raise close to a $100,000,000,000 in this IPO. That's not gonna cut it, I don't think. I think they're gonna need to raise a lot more unless their revenue can just absolutely skyrocket over the next year and be so much larger than the amount they're spending. I don't see a way which that's gonna be enough to get them by over the next several years. So it seems as though they're gonna have to raise more money, presumably debt. As you point out here, we now know according to the Financial Times that Blackstone told investors that Anthropic is not gonna get that investment grade rating that we all thought that they were going to get. It's gonna be a high junk rating. How much in your view does that matter? To what extent should investors really be paying attention to that?
00:13:11 · John Foley, Ed Elson
[00:13:11] S5: I mean, being able to raise funds cheaply and rapidly is really important. Everyone is doing it. Meta platforms was one that we found out last week is doing a big equity raising, because this this is a race. Everyone wants to... Wants to beat their rivals and you do that by throwing money into the furnace at this point. So not having an investment grade credit rating just makes that process more expensive. This is all stuff that should be referred. This is not to say that Anthropic will fail. It's not to say that it won't be a a, you know, one of the winners in the AR race, but it should all factor into the amount you're prepared to pay for the shares when it tells us what the price range is. And my fear is that people will just look past that and see this is a kind of scarcity play. There's only one Anthropic. I have to get in, and that would be potentially very risky for them. [00:13:59] S4: John Foley is head of the Lex column at the Financial Times. John, always appreciate your time. Thank you. [00:14:05] S5: Thanks. [00:14:08] S4: After the break, a brutal sell off in tech. And for even more markets insights, you can subscribe to my weekly newsletter simply put at edwardelson.substack.com.
00:14:26 · S6
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00:16:37 · S7, Ed Elson
[00:16:37] S7: Black Friday is around the corner, your biggest chance to grow sales this year. Don't wait. Realize is Taboola's advertising platform for businesses, letting you launch campaigns on top premium websites beyond search and social. Add Realize to your media mix and scale this q four. And as an exclusive offer for podcast listeners, new customers get $700 credit back. Just search Realize Podcast on Google or use the promo code podcast 26. Don't miss out on this limited time offer. Terms apply. [00:17:17] S4: We're back with Prof G Markets. Earnings from Alphabet, Amazon, and Microsoft flooded in last week, and investors were not happy with the results. Despite a pop after reporting, Microsoft ended the week down 2%, and Amazon and Alphabet closed down 411% respectively. The selloff spread to the rest of tech as well. The Nasdaq one hundred is now off more than 10% from its peak early last month, putting it in correction territory. All in all, the biggest AI and chip stocks have lost about $5,000,000,000,000 in market value over the past month. So why are tech investors selling? Here to break it down, we're speaking with Deirdre Bosa, founder and host of Deirdre Bosa Live. Deirdre, good to see you. So AI and chip stocks have lost about $5,000,000,000,000 in market value since the beginning of October. This has been a pretty dreadful month and certainly week for practically every name in tech right now, even the companies that seem to report earnings. I guess let's just start with your overall reaction. What is going on right now?