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.
00:08:48 · Max Read, Erin Griffith
[00:08:48] S1: So they're looking for new avenues for growth potentially. They're they're trying to sell different stories about what the next big product is. [00:08:56] S3: Yeah. And I think we're gonna see this on the show. I'll be watching that pretty closely. I think that's gonna kick off in probably a week or so. [00:09:01] S1: Before you start, what is a road show? [00:09:03] S3: So in a week or so, Anthropic is going to basically go on this tour where they meet with all the public market investors and kinda tell their story, and they call that a roadshow. Bankers would kinda take them around on a little private jet, and they're, you know, meeting with, like, insurance companies in Iowa or whatever and telling telling them about the machine god. So that's gonna be just like kind of amusing on its own. But, you know, they need to tell, I think, a new growth story because they're going to say, okay, we had this, like, coding product that's incredible, but, like, it's already kind of showing... Slowing down in growth. What's our next growth story? Well, they believe that AI is going to, you know, solve many, many, many problems in the world. And so one of the stories that they're pitching to investors now is this bio thing. You know, AI is gonna cure cancer. Like, AI is gonna develop new drugs. So that's like a big story they're gonna probably be pitching. And then they have other products too, like, you know, legal tech or, like, other other ways that AI is going to kind of disrupt the economy beyond just coding, which has been, again, like, a blockbuster hit for them.
00:09:03 · Erin Griffith, Max Read
[00:09:03] S3: So in a week or so, Anthropic is going to basically go on this tour where they meet with all the public market investors and kinda tell their story, and they call that a roadshow. Bankers would kinda take them around on a little private jet, and they're, you know, meeting with, like, insurance companies in Iowa or whatever and telling telling them about the machine god. So that's gonna be just like kind of amusing on its own. But, you know, they need to tell, I think, a new growth story because they're going to say, okay, we had this, like, coding product that's incredible, but, like, it's already kind of showing... Slowing down in growth. What's our next growth story? Well, they believe that AI is going to, you know, solve many, many, many problems in the world. And so one of the stories that they're pitching to investors now is this bio thing. You know, AI is gonna cure cancer. Like, AI is gonna develop new drugs. So that's like a big story they're gonna probably be pitching. And then they have other products too, like, you know, legal tech or, like, other other ways that AI is going to kind of disrupt the economy beyond just coding, which has been, again, like, a blockbuster hit for them. [00:09:58] S1: Right. One thing I wanna talk about with the s one is the 93 page risk factor section. So you've read a lot of s ones before. Are they are [00:10:06] S3: they Every every word of everyone, just [00:10:08] S1: to be clear. Obviously, your capacity as a as a reporter. Are they usually 90 pages long?
00:10:08 · Max Read, Erin Griffith
[00:10:08] S1: to be clear. Obviously, your capacity as a as a reporter. Are they usually 90 pages long? [00:10:13] S3: I mean, they're usually pretty long, and it's a lot of legalese. It's just like a lot of ass covering, basically. Mean, it's it's like... It's basically anticipating all the potential things that shareholders could get mad and sue over and saying, we warned you. [00:10:25] S1: Right. Exactly. And there's a lot of those for Anthropic. I'm just gonna read a couple of them right now. [00:10:28] S3: They're they're very unique in their specificity, let's just say. [00:10:31] S1: Yeah. And I would say too, it's funny reading them if you've been following AI for a while. Like, it's kind of like getting six years of Twitter and blog posts and Substack, like, compressed into, like, a document of legalese because they're listing everything from, you know, the resource constraints on building out compute to the various sort of AI safety problems to just sort of like your your basic business problems with, you know, customer satisfaction. But the ones that caught my eye, for example, are concerns have been raised both within our organization and by other researchers that sufficiently advanced AI systems could, if not developed, deployed, and operated with appropriate safeguards, oversight and security measures, pose catastrophic or existential risks to humanity. This is a pretty rare kind of thing to do. Another one that I was really... It