Anthropic's Historic IPO Has Arrived | S1 Breakdown

00:08:59 · CJ GustafsonPlay from here

Before starting the IPO process, we spoke to many business leaders who had gone through a similar process in the past. One piece of advice, which we heard in slightly different forms from multiple people stuck with us, never let your company be worth a dollar more than it is actually worth. But like also value us at Qtroian. What they're saying here is the same thing that they do in recruiting where candidates get like this anti sell pitch of like, it really sucks to work here. You know, you do not wanna work at Anthropic. Then they warn you of surprises coming down the pike. So if it first would be spending, business bets that derive from AI's wild exponential trajectory but seem strange or unorthodox in isolation, and on the public good side, decisions that depart from profit maximization in order to appropriately balance the public good. Quote, Anthropic will often make forward investments, especially in compute that may seem irresponsibly large at first glance. Hair cover, they compare it to pharma where you get these huge upfront r and d investments, and they only make sense later in light of the returns from successful drugs. Except for Anthropic, it's a similar process that's occurring much faster and on a much larger scale. Their stated approach is to, quote, be bold but sane. They've also committed to keeping Claude free of advertising. That's a that's a weird choice to, like, say, we're not going to do this one, like, major business model that has funded a ton of the innovation in the economy. And they say there may be time that they choose to advance more slowly than they could, even if that puts us at a competitive disadvantage. They sign off asking you as a prospective owner to quote, not to think of your purchase in purely transactional terms. I left thinking I would buy a used Chevy Avalanche from them. A refresher where Anthropic sits in the AI stack. So if you read our n scale s one breakdown, you've seen the five layers of AI. So first, got power, so that's the electricity itself in the grid or generated on-site, or maybe nuclear. Then you got land and data centers, the buildings, the cooling, the grid connections that turn power into usable space for servers, then you get the chips, the GPUs and other accelerators plus the networking gear that ties them all together, all those bungee cords.

00:11:13 · CJ GustafsonPlay from here

Then you get cloud software, the layer that schedules jobs and keeps the hardware running. And five, the models and apps. You get an Anthropic, OpenAI, and everyone building on top of them. So Anthropic lives at layer five. It rents most layers one through four from the Amazons, the Googles, the Microsofts of the world, and it trains in... Serves cloud across four chip families. You got Amazons, Googles, Nvidia's, and AMVs. But it's starting to reach down the stack, and what I is they're gonna vertically integrate here. They call it Anthropic direct, leasing chips directly and hosting them in dedicated facilities operated on their behalf, which now puts equipment leases and committed power costs on their own p and l. The filing also mentions guarantees to developers to get data capacity built. Quote, as we continue to build out our own computing infrastructure and further vertically integrate across the compute supply chain.

00:12:07 · S1Play from here

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00:14:20 · S1Play from here

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00:14:48 · CJ GustafsonPlay from here

[00:14:48] S0: How are they making money? They're making a lot of this money. There are four model classes. They get the mythos, mythos, mythos, including fable, opus, sonnet, and haiku. Each one sits at a different point on what they call... I love I love this. The capability cost speed curve. Customers use the smart expensive ones for coding and agents and route these simple shit to the cheap fast ones. I forgot my password. I forgot my login. They charge two ways. The first is pay for intelligence. Customers pay for usage metered in tokens and price by model. This was 80% of revenue in the first half of twenty twenty six. And subscriptions, Clouds apps on a monthly or annual plan for enterprise and prosumers like myself with terms of twelve months or less, this was the other 20%. The two models feed each other because when a subscriber runs out of the usage in their tier, they can move up a tier or buy more intelligence directly, which turns that subscription revenue into usage revenue. And that's why the usage revenue is far outpacing the subscription revenue. A growing number of enterprises also sign non cancelable annual or multi year contracts with minimum spend commitments in exchange for a committed price list. So like to lock in with certainty what you're gonna pay. These mostly show up as usage revenue too. So they sell it through what they call surfaces. Claude platform, the building blocks or developers put Claude inside their own products. Claude code, the coding agent, Claude co work, the knowledge work agent, which they started merging with Claude dot ai in September. Let's talk about distribution, which they called the fusion. Much of the diffusion of Claude has been organic because prosumers use it in their own personal life and then eventually they bring it to their company life. By the time the sales team from Claude is there, they're already using it in some way, shape, or form. They're looking to get better pricing. The biggest benefit to the go to market is that it's available through all three major cloud providers. So a customer can buy inside the AWS, Google Cloud, or Azure relationship they already have. And Anthropic keeps the contract with the customer and pays each cloud a fee, a vig, a rake. And then there's the old fashioned channel model via consultants, the Accenture's, the Deloitte's, the KPMG's, and PWC's of the world.

00:17:05 · CJ GustafsonPlay from here

They all have these cloud practices. They will make a ton of money in this boom just implementing it. And then Salesforce and Snowflake embedded into their platforms as well. So a lot of ways to buy. They also see the private equity angle. PE's eating everything, baby. The problem is how you get it into mid sized companies who aren't that tech forward. So they launched Ode with Anthropic, that's o d e, an AI services company built with PE firms to deploy Claude across their portfolio. So sales, marketing, and partnerships came to 19% of that massive revenue in the first half, and most of that was fees to channel partners. They don't call it ARR. So a few weeks ago, I wrote, there are no new crimes, just new ways to calculate revenue. Ain't that true? Well, after Higgs Field CEO was on twenty minute VC, and he said that they calculated annualized revenue, quote, the same way OpenAI and Anthropic do by taking the last twenty eight days of revenue and multiplying by 13. Anthropic doesn't call it ARR. They call it run rate revenue. Quote, the sum of one, our consumption based fees during the trailing twenty eight period ended on the measurement date multiplied by 13. So I think that's like 364. They give you one day back. How generous. And two, our aggregate monthly subscription fees as of the measurement date multiplied by 12. Like I said, last twenty eight days times 13 plus monthly subscription times 12. But this is the kicker. They don't give you a number. They just define it. That is a first for me to have this definition and then not give us a number. However, they've been telling everybody and their mother for months. So Dario said on stage in April that they'd hit a 30,000,000,000 run rate, then the series h announcement in May said 47,000,000,000, and Bloomberg reported 65,000,000,000 at the end of July, up from about 9,000,000,000 at the end of twenty twenty five. When the 30,000,000,000 number came out, OpenAI argued, hey, hey, hey, the same, overstated by about 8,000,000,000, and the filing shows why they might say that and be right, because Anthropic books cloud marketplace sales at the gross larger amount before the cloud providers take their cut. As for year end, the Financial Times reported investors expect run rate to land somewhere between 100,000,000,000 and 120,000,000,000 at the end of the year.