00:02:18 · Erin Griffith, Max Read
[00:02:18] S3: Oh, yeah. [00:02:19] S1: We can get to that later. Maybe in the segment b. [00:02:21] S3: Yeah. I was on the fence. [00:02:22] S1: Yeah. Well, there's a lot of referendums that we're gonna talk about today. I think that was an important one. The second thing I wanna talk about is that Anthropic announced its intent to go public, which means the rubber is finally hitting the road after however many years it's been of hype and doomsaying and argument. You have been reporting on Anthropic and the AI world for a long time, and I wanted to of pick your brain about this company today Okay. Because this feels like a huge inflection point Yeah. For for AI, for tech, for the stock market, the economy, humanity. [00:02:53] S3: Yeah. Just the stakes are stakes are only that high. [00:02:55] S1: Yeah. Exactly. So what is riding on this?
00:02:55 · Max Read, Erin Griffith
[00:02:55] S1: Yeah. Exactly. So what is riding on this? [00:02:58] S3: I mean, everything. Everything. I mean, think that was our headline, was nearly everything. Practically speaking, this is the first pure play, like, LLM, large language model company to go public, to open its books so we can actually look at the underlying business of this AI boom that has been going on for four years and attracted trillions of dollars in investment and sort of reoriented our entire economy around itself. And, you know, Anthropic, alongside OpenAI and, you know, arguably Gemini from Google, are kind of the companies that are that are driving this. They're like the pillars that are... You could call... I've heard many metaphors. Okay? You could call them the the bottom piece of the Jenga Tower. I've heard them described as, like, know, the tip of a pyramid with, like, a bun... An entire ecosystem of of companies supporting it. But either way, like, they are sort of the quintessential AI companies. And now for the first time, we have kind of a look at underlying business model that so much money has gone into. [00:03:54] S1: So are the investors you're talking to, are they nervous about the IPO? Are they worried about what might come out of it?
00:03:54 · Max Read, Erin Griffith
[00:03:54] S1: So are the investors you're talking to, are they nervous about the IPO? Are they worried about what might come out of it? [00:03:59] S3: Well, I mean, last week, they were definitely nervous. Yeah. Now we've, you know, had a a day or two to kind of look at these numbers and and see. And and some of them have leaked already along the way. So we had kind of a sense that this is the first time we see, like, in a 300 plus page document, the full picture of what Anthropic's business looks like. [00:04:18] S1: So let's let's go there. What what are the the sort of big important things that we can take away from the s one?
00:04:23 · Erin Griffith
[00:04:23] S3: Okay. Well, first of all, I guess it's okay to say that business looks kinda healthy. I mean, it's arguable. There are people that have, you know, made the case that it's not. But I think, like, generally speaking, people have been kinda pleasantly surprised to see that this company is capable of making money. And I mean, when we've seen how much money these companies have raised over the years, we've seen how much they've been spending to build their AI products, I think the general consensus has been like these companies can never make money. And just to be clear, Anthropic posted an $80,000,000,000 net loss. So maybe let me unpack that a little bit. An $80,000,000,000 net loss seems insane, but it's actually kind of a weird accounting quirk where they have to count some convertible debt that they issued to some of their shareholders as a net loss, and that will essentially be cleared in the next quarter or then... Or by the time they go public. And so that's not a reflection of the health of their actual business. What we've actually seen is that they, in the first half of this year, had an operating loss of around 6 to $700,000,000, and that's shrinking from the same period last year where it was, like, over $2,000,000,000. So they're they're shrinking their losses of the actual business that they're operating. On the flip side, they are still shelling out enormous sums of money, and they're on the hook for enormous sums of money to build out their AI infrastructure. So this is the data centers, the chips, the compute power, the very, very expensive stuff that they need to keep training new models and to support the old models. So, like, it's it's this kind of... And Dario has talked about how the company is sometimes on a knife's edge when it's making these decisions and signing these deals. And so they have signed so many contracts in anticipation of the demand. And it's like a very high risk game. If the demand's not there, then they're gonna be sitting on all these contracts, and some... Many of them are non cancellable. If the demand is there and they don't have enough, then they're gonna be losing business. And so that's kind of what's like underlying all of this is like how much AI are businesses and people going to be using, And has the company, you know, basically laid the groundwork for that?
00:06:26 · Max Read, Erin Griffith
[00:06:26] S1: Right. I mean, it's interesting because on the one hand, the s one seems to confirm that there's an enormous amount of demand. I mean, we're talking about $16,300,000,000 in revenue for the first half of twenty twenty six. [00:06:36] S3: Is an enormous amount of growth too. Like, it... You know, it's... We're we're seeing a company grow 14 x. I mean, that is insane, especially for a company of this size. So we've never... I mean, I hate to, like, say unprecedented, but it feels like we haven't seen a company growing like this ever before. [00:06:51] S1: Right. So we can say there's demand for this. Right? But with the question that you're saying is we don't actually know how much it is, and it might be that there's more even than we've already seen. It might be that there's actually less. But we're building a certain number of computers, I mean, to be be very simple about it, No matter [00:07:06] S3: what computer. [00:07:07] S1: We're building a lot of computers out there in the desert, and Anthropic has committed a ton of money to those computers. Mhmm. And so is that the biggest risk they're facing?
00:07:15 · Erin Griffith
[00:07:15] S3: Definitely. I mean, this is, I think, what everyone's looking for. And so the s one that we saw did not have q three numbers in it, and they've already kind of previewed those numbers to their investors, and our reporting and others have shown that the growth is actually slowing in in the third quarter. And that's because first half of the year, Claude Code just was growing like crazy. They basically took the entire industry by storm, and everybody's using their coding product. Now competitors like OpenAI are starting to catch up. Companies are trying to pull back on how much they're spending on tokens because they realize that token maxing got out of control. And so the growth is a little bit slowing, and they're getting some competition from open source models or cheaper options. And so I think in q three, they grew 44%. And so that's a pretty significant slowdown from, again, gangbusters growth down to like just just great growth. But is that going to continue on that trajectory? In that case, okay, the growth story isn't, like, as exciting, and perhaps demand isn't, you know, gonna be through the roof forever. So that's one question investors are looking at. And I think just in general, they're looking to see how Anthropic explains that slowdown. Because if Anthropic just comes in and says, like, the whole market is pulling back, that's very, very bad for this whole ecosystem, the Jenga tower or the pyramid that I'm talking about for, like, you know, all the demand and all the investments that everybody is making, all the debt that everyone's taking out to build this stuff out. If the reason that the growth is slowing is just because of competition, because OpenAI or opensourcecom... You know, companies are are kind of eating market share, but the demand is still growing, then, great. Party on. AI, you know, boom continues to boom.