Why Alphabet is the Winner from Anthropic’s Incredible Growth

0:00Travis Hoium:Hi,

0:08I'm Travis Hoium.

0:23Travis Hoium:I'm Travis Hoium joined today by Rachel Warren and Lou Whiteman. And guys, we got to start with Anthropic. The talk of the week has been their announcement that they have gone from a$9 billion annualized revenue rate. Maybe not the best measure for revenue because it's not actually, but it kind of gives you an idea how fast they're growing. So$9 billion at the end of 2025,$30 billion at the end of the first quarter. Rachel, this is just absolutely insane growth from a company at that scale. Yeah, that$30 billion run rate is actually just quite mind-blowing. I mean, you put that in perspective, Anthropic essentially tripled its business in just 90 days.

0:59I mean, we usually celebrate when a company doubles in a year doing it in a single quarter. I think it shows that at least for now, what many have framed as AI hype, if you will, it's turning into this massive enterprise land grab. You know, this isn't just about startup growth. This is, I think, very much a fundamental shift in how the enterprise world is adopting AI across industries. And I think something that Anthropic has really tried to put out there is very much this kind of safety and reliability angle with businesses using Claude, whether it's healthcare giants, tech companies, or otherwise.

1:31And I think it's so doing. They've unlocked the corporate vault, so to speak. I think we're seeing businesses are finally moving past the experimental phase, and they're putting massive budgets behind these models. And that's creating exponential tailwinds for Anthropic.

1:46Lou Whiteman:I feel like, in talking about this, we risk parroting or extending the AI hype. Because it's really hard to take a big picture look at this. I'd note that searches for Claude tripled over the last 90 days, according to Google Trends. That lines up with the revenue. Obviously, I think those are related. We know this. Claude is having its moment. Claude is all we've heard about for the last 90 days or so. That's great. And if it's sustainable, it should mean that it's a good business, probably a better business than the other AI giant that wants to go public. But I think to assume that this continues is lowercase foolish.

2:29Lou Whiteman:I mean, look, there are natural limits here to what people can spend. Travis, I think I said it to you, but there was a viral LinkedIn post last week of a CEO bragging about their four-person company spending$125 ,000 a month on Anthropic. right now. I'm just going to go out on a limb. I don't know anything about that business, but you cannot continue to triple that indefinitely. There's just not enough revenue there. So, this is great. I think all of this does, though, on the revenue side is tell us what we already knew is that Claude is the only thing we've heard about over the last 90 days or so.

3:06Travis Hoium:Yeah. And their focus on coding specifically really seems to be their differentiator. I know the$20 a month that I'm paying them is probably not really moving the needle. It's really those enterprise customers that are spending hundreds of thousands of dollars per employee. The other angle to this, and this came out yesterday, was that they just signed another deal with Google. Google happens to own 14 % of Anthropic, but this is going to be for use of TPUs. So they announced this with Google and Broadcom, and they're using TPUs. So we hear a lot about NVIDIA, you know, owning the market for artificial intelligence.

3:43Travis Hoium:It seems like right now the momentum is behind Anthropic and Anthropic is moving to TPUs. So that seems pretty notable, Rachel. Yeah, it's a really interesting dynamic. Obviously, the move helps Alphabet's Google, right? I mean, Google has its own AI, Gemini, but it wants to be the landlord for everyone else through Google Cloud. And of course, giving Anthropic a large supply of its own specialized chips or TPUs is another key piece of the puzzle there. But I also think it really demonstrates the very strategic approach that Alphabet's taking. You know, by providing significant computing power, they ensure that Anthropic, which is, of course, a major competitor to OpenAI, remains on Google Cloud.

4:22And that strategy means that Google can benefit regardless of which AI model gains dominance. And I think the other kind of takeaway element here is something of a warning to NVIDIA. Obviously, I don't think NVIDIA is going anywhere. They have a significant backlog. They're a key leader in the space, but it shows that Google's custom chips could be a viable alternative. And I think we might see a world in which other AI startups become less reliant on NVIDIA hardware 10, 15 years in these years ahead.

4:54Lou Whiteman:I mean, I guess benefiting Anthropic to hurt OpenAI, I think it's maybe be careful what you wish for. Google's core business on the AI side, I think, is probably a competitor with them. If anything, Anthropic has shown itself to be maybe a smarter competitor or a more disciplined competitor.

5:16Travis Hoium:Well, more disciplined, for sure. We've been talking about that for months. I just can't seem to get out of its own way.

5:23Lou Whiteman:If I'm Google, maybe I would prefer open AI to stomp anthropic in some regard. But look, I still worry that all of these models are heading in the same direction and they're all sort of commoditized. And so having the multiple ways to win with partners, with investments, with kind of just being the service provider versus the model, that makes a lot of sense to me. It plays to Alphabet's strength. So I think it's a good move for them. But if I'm Alphabet, I'm not sure I'm cheering the demise of open AI to the benefit of Anthropoc.

5:59Travis Hoium:Even the 14 % stake? Yeah. I mean, that part.

6:02Lou Whiteman:If I'm actually the product manager trying to roll out Gemini, I'm not cheering that. Got it.

6:08Travis Hoium:Yeah. Because they're a very real competitor, seem to do a lot of the things that Gemini does not do well. It seems to me that just following this space, I don't have many specific investments that are just AI, but Alphabet's one that I own just because it seems like the only kind of no-brainer. No matter what happens, they're going to be around in one way, shape, or form. They will.

6:31Lou Whiteman:I mean, the one note on that, is that part of it is backfilling what they could be losing. So, it's not necessarily just organic growth for them if search does decline due to AI. Their AI can backfill that, but it's not just the unbridled growth that it would be for some of these other companies.

6:52Travis Hoium:Well, a lot that we are going to definitely be covering over the next few months and years, likely on Motley Fool Money. Next, we're going to get to where we may be using products like Claude, the new foldable iPhone. You're listening to Motley Fool Money.

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7:26Travis Hoium:Welcome back to Motley Fool Money with the Hidden Gems team. We got news this week that it seems like we're going to likely get a new foldable iPhone as early as September, Rachel, this has been kind of rumored for years. We have other foldable phones out there. Is this notable or is this just going to be another one of those kind of, eh, it's cool. You can make a VR headset. It's cool. You can do all these other things, but it's still not going to be a core product for them or am I overthinking this? I mean, you're right. We've been hearing rumors about this for years. It seems like they're hitting a bit of a fever pitch.

7:58I think it's far too soon to say how much of a needle mover this will be for Apple. I think a lot of us are thinking, okay, do we need this? You know, for most of us, our phones are already great. Folding a screen in half can feel a bit like a flashy solution to a problem no one has. But if you think about why Apple would be doing this, okay, so the smartphone market is maturing. Obviously, the excitement over having maybe a slightly better camera on the latest generation of one's iPhone is wearing off. And so I do think there's this idea where Apple is saying, maybe we need something that's a bit more futuristic, gives people a reason to maybe drop$2 ,000 on a phone again.

8:32And I mean, Apple is doing very well, right, from a financial perspective. They have record services revenue, massive cash pile. They're very profitable. But the hardware growth has been a bit flat. And of course, that's the core of their business, even though services are the fastest growing area. I think it's interesting. I mean, you think about markets like China, right? Foldable phones are sort of seen as a status symbol. And a lot of Apple's competitors broadly in Asia have been introducing their own versions of this. There was actually a survey that went around where about 40 % of iPhone users that were surveyed in Asia were saying that a foldable could be the ultimate weapon to reclaim a top spot, that they might be interested in a folding model.

9:12So we'll see if this is something that actually moves the business. It might just be a niche product that a few people buy. If Apple pulls it off, I think it proves that they can still really innovate. If it flops, I think it could be a very expensive distraction from their AI goals.

9:28Lou Whiteman:So, I was trying to figure out if I think this is the best of Apple or the worst of Apple. And I think the answer is probably both. In one sense, you know, look, the Samsung version has gotten kind of mixed reviews. The reports say that that is exactly what Apple was targeting here to kind of areas where Samsung has fallen short, durability, the screen kind of creases or whatever. So, in a sense, this could be a classic case of Apple not being first, but being best, refining and winning. If this is today's version of the next big thing, maybe we should just give up on the Steve Jobs turtleneck version of Apple.

10:08Lou Whiteman:In a way, maybe, Steve, you've conditioned us.

10:11Travis Hoium:Steve Brokamp, we're going to get to the point soon where people don't remember that reference. Well, right.

10:15Lou Whiteman:Maybe, but I do feel like with Apple, there is still this weird expectation of, like, oh, just wait for it. They're cooking up something. And you know what? I think all of the evidence suggests that those days are over. If they were cooking up something, we would know it by now. We'll see. Travis, we've talked about it. Whether or not anybody wants an AI pin on their lapel, we'll see. But look, this is both a very good company doing things they should do. The $2 ,000 plus sales price, assuming people will pay for it, is a nice revenue boost. So, it is incremental gains. But I think just the mindset, all of us olds that are used to the guy in the turtleneck saying one more thing, those days are over and we need to value this as a mature company that just kind of continues to create incremental value off of their core products.

11:07Yeah.

11:07Travis Hoium:The one thing that I think is interesting with this product in particular is, is Rachel right, this is really just a China product. And if you read the book, Apple in China, one of the things that I took away from that was that Apple was such, and iPhones were such a status symbol. It was not, hey, this is the most productive use of my money. It was just, look, I have an iPhone, and you would spend an insane amount of your annual earnings to buy that iPhone. So the cultural differences between China and devices in the US and devices, I think, is not something that we necessarily fully understand as US investors.

11:47Travis Hoium:But that seems to be when they make some of these changes and come up with something that looks a little bit different. It spikes in China because there is still that Apple cache. So maybe that is the answer is that it's just something that's kind of made for China. But I keep going back to, is the iPhone just too perfect of a product? Is there just no better answer than here's this flat piece of glass that's a computer that can fit in your pocket and we're just not going to get anything better? I don't know. Maybe that's the simple answer.

12:15Lou Whiteman:I mean, honestly, the answer as the Google Pixel. I beg to differ, Lou.

12:20Travis Hoium:All right, we'll have to have our iOS Android battle in a future show. When we come back, we are going to get Lou's thoughts on the latest from Delta. You're listening to Motley Fool Money. It's spring cleaning season, and this year we decided it was time to clear out our old mattress and settle into a Legend Hybrid from Lisa. Like a lot of parents, getting a good night's sleep is critical for being refreshed when the chaos begins in the morning. And in the month I've been sleeping on the Lisa Legend Hybrid, I've fallen asleep faster and I'm sleeping deeper, which means I wake up more refreshed.

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13:29Travis Hoium:Support our show and let them know we sent you after checkout. That's Lisa.com promo code fool. Welcome back to Motley Fool Money with the Hidden Gems team. Delta reported earnings this morning. Lou, what did we learn?

13:40Lou Whiteman:So I don't want to bore everybody with all of the numbers. Honestly, they pre-announced this two weeks ago. That's how the airline industry works, where everything that they announced today was basically what they said they would do. Great quarter, though. Things are holding up. Much more interested in what they're seeing into the future. So far, so good. The airline said, its corporate client survey, 85 % expect to maintain or increase their travel spend in the second quarter. Low teens revenue growth, we're expecting 10 % or so. Delta, I marvel here. Finally, the debt is down below COVID levels.

14:24Lou Whiteman:We like to see that. Again, they gave us exactly what we wanted, but you marvel here is I don't think we fully appreciate what Delta did to save this industry. In 2008, they were the first ones to do a bankruptcy to buy a competitor, take out Travis's hometown airline. But they rethought, how can we both beat the discounters and still gain margin and gain advantages? Every legacy has followed that. And this is why we're in a better place today. One note, my favorite notice corridor, Travis, people have made fun for a decade of Delta buying an oil refinery in Philadelphia. That refinery was a$300 million incremental profit boost in the quarter.

15:08Lou Whiteman:Also, having that there in Philadelphia, and the reason they bought it wasn't because they wanted to speculate on oil, it was because they were worried about whether or not jet fuel would be available in New York. That refinery is the reason why that over in Europe, they were canceling flights. In the U.S., the flights just got more expensive. Look, I'm still not going to buy Delta stock. I don't like buying airline stocks. But this company, maybe with United as its only rival, is just so well run and sees things so well. It's just, and this quarter, this is why they are the best. I agree. I think it's probably one of the most well run, if not the most well run of the airline companies.

15:48A few things stuck out to me in addition to what Lou said. They were unprofitable under GAAP, but they reported an adjusted profit that grew by more than 40%. Another interesting piece of this, revenue from premium seats, corporate travel, loyalty programs makes up more than 60 % of the top line at this point. Premium revenue was up 14 % in the quarter. Main cabin revenue actually increased for the first time since late 2024. So that was another element that I think kind of surprised me, even though the most significant growth that we're seeing is in those premium areas. As Lou noted, they're doing a good job of cleaning up the balance sheet.

16:28CEO Ed Bastian said that Delta is going to meaningfully reduce their capacity growth plans in the near term as fuel costs soar. It isn't clear, though, if or when customers will pull back. Certainly, of course, in these results we're seeing now, there is a very, very robust tailwind carrying them into this next quarter of growth. So overall, I think a good start to the reports from the airlines for this earnings season.

16:52Travis Hoium:Yeah, we keep looking for canaries in the coal mine that the economy is getting weaker, and they just never seem to show up. So we'll keep looking. But with the market, where it is, we're bouncing back today, early on Wednesday, maybe one of the best days that we've ever had in the stock market, at least on certain metrics. But the economic weakness that I think would show up in a lot of those airlines first has not shown up yet. So we'll see what happens, especially with oil prices in the future and how consumers are feeling. As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against.