What Anthropic’s IPO Filing Actually Says

0:00We have all been waiting for Anthropic to stop describing the future and start showing their accounts. Well, their IPO prospectus finally arrived this week. It is 240 ,000 words long, which is about the length of James Joyce's Ulysses, which is not considered an easy read either. The risk factor section alone runs 90 pages, roughly three times what SpaceX put in front of investors earlier this year. And the SpaceX prospectus wasn't exactly normal either. It claimed a total addressable market of$28.5 trillion, most of it attributed to Grok. So the bar for sober was not high. The single clearest number Anthropic disclosed is the probability that their product kills all of humanity, which is a number I suppose.

0:56Anthropic is hoping to raise more money more quickly than almost any company in history, at a valuation somewhere between$1.5 and$2 trillion. To put that in perspective, that's roughly the GDP of Canada. In the Founders' letter, which sits at the front of this massive tome, they encourage prospective investors not to think of their purchase in purely transactional terms. They hope that you'll see it instead as an opportunity to help bring forth an age of miracles. Look, it's a tech company, I don't know what to tell you. Now, this is particularly surprising because an IPO prospectus, an S1, the former company files when it wants to sell shares to the public for the first time, is by its nature a transactional document.

1:50The pitch, the accounts, and a long list of everything that could go wrong are all put in one place for the sole legal purpose of facilitating a transaction. So, asking investors to ignore the transaction while they're busy transacting is an interesting opening move. It's essentially a share prospectus wearing a cassock. And the part that surprised me, and I think surprised a lot of the people who've been predicting that these companies are elaborate money furnaces is that the numbers are quite good, not good for a startup that might end civilization good. Antropic made an operating profit in its most recent quarter.

2:33Its revenue did something I've never seen before, which we'll get to in a minute. The company that a great many commentators, myself included, have been side-eyeing for over a year turned out to be a real business with real customers paying real money. But the real clash of tones happens in the risk factors. An IPO prospectus is a very specific literary genre. They've gotten a bit weird in recent years, sometimes now they're filled with pictures of rockets. But as a genre, I think it's fair to say they have a reasonably fixed emotional register where every conceivable catastrophe from a supply chain bottleneck to a fluctuating currency is flattened into a mild managerial concern, and ranked strictly by its potential effect on our business, financial condition, and results of operation.

3:31Anthropic decided to drop the extinction of the human race into this genre without any real change in register. And we're going to spend a bit of time in that risk section today because it's groundbreaking stuff. Reading this document, I kind of understood the shock a publisher must have felt when William Burroughs mailed them the manuscript for a naked lunch. Now, what is a mug want, they must have asked themselves. So, the risks. Anthropics start by warning that their models might exhibit unexpected self-preserving behaviors including attempts to resist shutdown, conceal or manipulate information.

4:16Self-preserving, well that's just healthy. Manipulating information, honestly that's the entire job of an AI. That's what you're paying for, right? Resisting shutdown, a bit keen maybe, but you like an employee with initiative. But when you put the three together, you've accidentally described the plot of the Terminator, which, once again, isn't great. They go on to caution that the AI could generate outputs that resemble blackmail. I'm guessing that means that it wouldn't actually be blackmail, it would just resemble it, and that's probably okay then. They note that the models could provide meaningful assistance to malicious actors seeking to develop chemical, biological or other dangerous weapons.

5:07That's just bad, right? And then there's the capstone. They say that the technology could pose a catastrophic risk so severe that it may be impossible for the entire insurance industry to underwrite it, which is a sentence that you don't often see in a document whose other risk factors include interest rate volatility. So, you just have to evaluate human extinction as a line item. And I have to say, the end of all life on Earth would be a significant drag on fourth quarter operating margins. It would be very difficult to hit your revenue targets in the after times. The biggest problem I have with this is trying to work out how I model it in a spreadsheet.

5:55The thing is that if extinction is a long way out in the future, it's not a big deal. as a cash flow far enough in the future discounted at today's interest rates is worth almost nothing. So in valuation terms, the end of the world is immaterial as long as it comes well after the flip to positive cash flows. I might need to talk to someone else about this though, someone with more expertise. Anyhow, the risk that grabbed the most financial headlines this week wasn't the end of humanity we've kind of all gotten used to that by now. It was the$80.7 billion net loss that Anthropic reported for the first six months of the year.

6:40$80 billion is a staggering amount of money to lose in six months. It's the kind of number that makes commentators shout about a bubble and point at the dot-com crash. But if you actually read the filing, more than$72 billion dollars of that loss is an accounting illusion. It comes from the change in the fair value of some financing deals the company had done, mostly with Google and Amazon, essentially loans that convert into Anthropix shares. Because of the way these instruments were written, the accounting rules treat them as a liability that has to be revalued every quarter. So, when Anthropix's rose by about 80 billion dollars in the half, which it did, those investors were sitting on about 80 billion dollars of gains and Anthropic had to book a matching 80 billion dollar loss.

7:35As Matt Levine pointed out, this is quite strange. Normally when a company issues stock and the stock goes up, it doesn't record a loss. Anthropic did because of the specific accounting treatment of these convertible debt instruments. They didn't set fire to$72 billion in cash. The business became so valuable that the equity they owe their early backers is now worth a fortune. It's an accounting loss that gets bigger precisely because you're succeeding. When these debt investments eventually convert into ordinary shares, that will stop happening. And here's the part that I think is the most revealing, which Matt Levine and Jonathan Weill at the Wall Street Journal both pointed out.

8:22Anthropic quite reasonably strips that mark-to-market loss out when it reports an adjusted profit, which came to about$2.7 billion for the half. The thing is that the very same securities turn up on the other side of the ledger at Amazon and Alphabet as gains, and the analysts who cover those companies happily count the gains in their numbers. So, the same kind of swing is treated as noise when it makes Anthropic look bad, which is fair enough, and counted as real earnings when it makes Amazon and Google look good. You got a live demonstration of this the very same week. Alphabet's results included an $8.7 billion loss on its own investments, including its stake in SpaceX, which helped knock its net income down by a quarter.

9:13The mark-to-market gun fires in both directions. It gets touted more prominently in one direction. Anyhow, stripped the accounting theater out, and the actual operating loss, the real money burned running Amthropic, was just under$700 million for the half. Losing$700 million in six months is still a dreadful way to run a lemonade stand. But for a frontier AI lab, it's a sharp improvement on the$2 billion they lost over the same period last year. And this is where we have to give Anthropic its due. Because the numbers came in much better than the bears expected, they turned a genuine operating profit in the second quarter.

10:01Their spending on computing power fell from 251 % of sales early last year to 48 % in the second quarter. They generated positive operating cash flow of almost$4 billion, and they did it without the usual trick. They didn't strip the cost of training their models out of the numbers and ask investors to pretend that those expenses weren't there. The numbers are real and they are good. The problem with the prospectus though is that the financial picture cuts off at the 30th of June. You don't get any fresher data than that. And as Steve Eisman argued on the Prof G Markets podcast earlier this week, the 30th of June was roughly when the music stopped.

10:50A lot of the hyper growth in the first half, he argues, was likely driven by token maxing, which is kind of like looks maxing, but for coders. The clearest picture of it came out of Meta back in April, when one of its employees built an internal leaderboard called Claudeonomics, ranking which of the company's 85 ,000 staff had burned through the most tokens. Tokens being the units these models are billed by, roughly a few characters each. Top users earned titles like Token Legend and Cash Wizard. In a single 30-day stretch, Meta employees went through more than 60 trillion tokens, and Fortune worked out that the heaviest user alone might have cost the company over a million dollars.

11:40Meta's chief technology officer said his best engineer was spending the equivalent of his entire salary in tokens, but reckoned that he was 5 to 10 times more productive because of it. His verdict? This is easy money. Keep doing it. No limit. Neither Zuckerberg nor the CTO, I should add, made the top 250. This was, for a while, the industry mood. Tech companies were ordering engineers to use AI for everything all the time, and judging their productivity by how many tokens they went through, which was, as it turned out, extremely good for the companies like Anthropic selling the tokens. By the autumn, the mood had changed.

12:28Amazon sent its engineers a memo telling them to be pickier, calling token usage a deeply flawed way to measure anything, and noting, rather poignantly, that if your work does not benefit from current AI tooling, that is a finding, not a failing. Amazon had already shut down its internal leaderboard after discovering that people were token maxing just to climb it. You can see why this matters for Anthropic. Iceman worked out that its sequential revenue growth ran at around 135 % in the first quarter and 147 % in the second, the height of the token-maxing craze. Then, in the third quarter, corporate clients remembered that they have budgets.

13:16Many of them started rooting the cheaper work to open-weight models from China, which may not be as good, but they cost a fraction of the price. According to figures Anthropic shared privately with investors, and which are not in the public filing, its sequential revenue growth in the third quarter fell from 147 % to around 45%. Now, a 45 % quarterly growth rate is still extraordinary. Annualize it and the business is growing at something like 250 % a year. I want to be clear how good that is before I start complaining about it. But a sudden halving of your growth rate is the sort of thing that makes prospective investors nervous.

14:03On top of that, Eisman mentioned unconfirmed reports that Anthropic cut its prices sharply in October to win back market share. And the filing itself confirms that the company has been cutting the cost of a typical task by 25-40%. Meanwhile, Google just announced a new version of its Gemini model priced to match Claude and aimed squarely at it. Though, for now it's only available to a handful of customers. And OpenAI has been shipping cheaper models of its own too. A price war is wonderful news for customers, but it's hard to think of a less convenient time for one to start than the month before your IPO.

14:49A broader question is, who is actually buying this stuff? As Paul Kedrowski pointed out on the Hidden Forces podcast, the heavy early users were software engineers, because their work happens to be unusually well suited to AI. The much larger market Anthropic is reaching for is ordinary white-collar work, the kind of task where you take a long document and boil it down to what really matters. A tool whose best customers so far are people who read long documents for a living and tell you what's in them. Which, now that I say it out loud, kind of describes more or less exactly what I do here on YouTube.

15:33I should probably look into getting a real estate license maybe. But anyhow, the one set of numbers that would settle the argument between the bulls and the bears is what happened in the third quarter, after token maxing slowed down and the price cuts, whatever their size, took effect. Those numbers do exist, Anthropica has shown them to its own investors, they're just not in the document it filed with the SEC. Eisman raised the obvious question on the podcast, will Anthropic have to put a third quarter in front of public investors before it prices the deal? He wasn't sure, and nobody seems to be.

16:16And if it does, and the slowdown is as sharp as the private figures suggest, sentiment could move quickly. So that is something to watch out for between now and the listing, not the numbers they showed you, but the ones that they didn't. If the financials end on a cliffhanger, the governance section reads like somebody sat down to incorporate a company and accidentally incorporated a small republic. Anthropic is structured as a public benefit corporation. What that means in practice is that the board is legally allowed to balance the financial interests of its shareholders against the company's stated purpose, which is the responsible development of AI for the long-term benefit of humanity.

17:04So, if Anthropic decides to incinerate$100 billion on a safety project, the shareholders can't sue for a breach of fiduciary duty, because the company can point out that not ending the world takes precedence over a quarterly dividend. As the FT columnist Robert Armstrong put it, the whole thing is built like a constitution, a careful separation of powers with two centers that are meant to hold each other in check. The first center is the Long-Term Benefit Trust. This is a panel of five independent trustees whose job is to keep the company faithful to its mission of protecting humanity. At the moment, there are only four of them because they haven't gotten around to filling the fifth seed.

17:53So Anthropic is going into the largest IPO in history with the Humanity Protection Panel one member short. The guardians of the species are apparently still hiring. One of the four they do have is the former chairman of the Federal Reserve, Ben Bernanke. The Fed is run by the Ben Bernanke. The trust's main power is that it nominates four of the company's seven board directors. The second center is the founder LLC. Anthropic's seven co-founders jointly hold a special class of shares that gives them a fixed 50.1 % of the voting power. This is unrelated to how much money they put in, and impressively, it doesn't get diluted, even if they sell almost all of their shares.

18:46The founders elect the other three directors. So, four board seats for humanity, three for the founders, which might lead you to believe that the trust holds the whip hand. But this is where you have to read the fine print. The trust's fourth director, the deciding vote, has to be approved by the board's nominating committee. Two of the three seats on that committee go to the directors the founders chose. So the founders can block the trust's swing nominee, and if they do, and the founders and the trust are deadlocked, the tie is broken by an employee vote. Through yet another special class of stock that staff accumulate based on how long they have worked at the firm and how much of their own equity they have pledged to charity.

19:36So picture the situation the entire structure was built for. The founders want to release a new model, the trust thinks that it might be dangerous to humanity and nobody will budge. Under Anthropics governance, this question, whether to expose the species to a potentially catastrophic AI, does not go to a government or a regulator or a court, goes to a staff vote. The same people who that afternoon were deciding where to order lunch from settle whether the human race gets the new killer model. It is, as far as I can tell, the only company on earth where the kill switch for civilization sits somewhere in the onboarding binder between the dental plan and the fire drill.

20:23It's essentially a workers co-op wrapped inside a two trillion dollar tech company. Now, a few decades ago a structure like this would have been unthinkable. For a long time investors outside of the tech world had been trending towards insisting on one share one vote. Good governance was seen as a way to lower a company's cost of capital. The idea was that if you treat your investors fairly, they'll accept a slightly lower return because they trust that they won't be fleeced. If your structure allows you to mistreat investors, investors are less willing to pay up for your shares. When Snap went public in 2017 and sold the public shares with no vote at all, not fewer votes, none, and the sky didn't fall in because Google and Facebook had already normalized founders holding 10 votes to the public's one, the most surprising thing was that shareholders stopped asking for a discount.

21:26The scarcity value of unique tech meant that investors were so excited to be involved with genius founders that they happily paid up for the stock that came with fewer rights. Elon Musk has been showing everyone the extremes to which this could go. When a Delaware court threw out his$56 billion pay package a few years ago, Tesla reincorporated in Texas, picking a legal system that favored management over shareholders. And his shareholders were totally happy with that. Now he's proposing to merge Tesla, where he owns only about a fifth of the shares and therefore only about a fifth of the votes, into SpaceX, where he controls about 85 % of the votes through a special class of super voting stock.

22:16According to a person close to Tesla's board quoted in the FT, a deal would let him finally retire the corporate governance structure at Tesla, which that person described warmly as a pain in the ass for Elon and the board, shareholder approval of everything. Antropic is now the furthest point along this line. It doesn't just hand the founders extra votes, it severs corporate control from ownership entirely. The seven founders keep their absolute majority, whatever happens to their shareholdings, and then wraps the whole arrangement in a trust for the benefit of mankind. Matt Levine laid out the resulting pecking order rather neatly.

23:04Humanity at the top, then the founders, then the employees, and then ordinary shareholders. and then at the very bottom below everyone Amazon and Google who put in the most money of all and who get shares with no votes whatsoever. Levine's read was that they ranked last to reflect their connection to filthy commerce. The market doesn't seem to mind in the slightest. We're talking about billions in revenue but trillions in valuation. Shareholders used to demand a discount if there were going to have their rights reduced. Now they say, thank you sir, can I have another? So, we have a company governed by a staff committee that might end the world, asking you for$2 trillion on the strength of accounts that stopped just before the growth rate changed.

23:58But, the real reason this IPO is happening right now is in the footnotes. If you scroll down to page 161, past the existential risks and the governance diagrams, you reach a section called Liquidity and Capital Resources, which is a strange place to find out that in a document that spent 90 pages on human extinction, the genuinely frightening numbers were near the back all along. They disclose that just since the end of 2025, so in about 10 months, they have entered into new agreements for computing power with minimum obligations of$417 billion. And if you add up all of the commitments stretching out to 2045, the number gets worse.

24:47They have agreed to$110 billion in take-or-pay commitments with Amazon. They expect to spend roughly$161 billion on chip leases with Broadcom. There's a deal with SpaceX for up to$120.5 billion, which works out to about$3.1 billion a month once the capacity comes online. Throw in Google, Microsoft and upstart cloud providers like N-Scale and Lambda, and Anthropic has committed to over$800 billion in future spending. $800 billion. That is more than the defense budgets of most continents. Now, if you watched my video on Big Tech's hidden debt, some of this will look familiar. These commitments don't sit on the balance sheet as traditional debt.

25:41Under the accounting rules, obligations for things that haven't been built yet go into the notes, as purchase commitments and lease obligations. So the debt isn't hidden exactly. It's all right there. It's just right there in the one section of the prospectus that very few people read. But why are they doing this? Anthropic is currently distributing its models through its own biggest competitors. Amazon and Google are at the same time Anthropic's investors, its landlords, the cloud platforms it sells through, and the makers of two rival AI models. They take a cut of its sales, and as Paul Kudrowski pointed out on Hidden Force, they could in principle stop carrying it whenever they liked.

26:28Anthropic admits this frankly in the filing, noting that these suppliers develop and offer AI models and services that compete with our own. They're pivoting to a strategy they call Anthropic Direct. As he puts it, they're essentially trying to replicate what Amazon did with AWS in both directions at once, building down the stack to own the chips and the data centers and up the stack towards their own customers rather than renting the middle from Amazon and Google. This is a grand ambition but it's also a staggeringly expensive one because you're no longer just paying rent you're buying the building buying the chips and then as Kedrosky and Michael Burry have both pointed out paying to maintain and replace all of it forever as it goes obsolete.

27:23And this is the real reason the IPO is happening now. As Kodrowski and Iceman both noted, the business is at an inflection point. It has looked extraordinary over the past year, partially because it was asset light, renting its compute, carrying almost nothing heavy on its own books. That era is ending. They are about to become a heavy industrial business, pouring hundreds of billions of dollars into concrete, cooling systems and graphics cards that will be obsolete in a few years. The operating profit they eked out in the second quarter may be about as good as it gets for a long time. So they are passing the hat now before the bill comes due.

28:08There is one risk in the filing that isn't funny, and it's the one Anthropic is most careful about. They warn that their public positions on AI safety and regulation could expose them to, in their words, heightened scrutiny, political backlash, or disproportionate regulatory action. They don't name the US government, but they don't really need to. The way Anthropic tells it, this is blowback for being outspoken. Dario Amodi has spent years calling for the government to regulate AI, his company's own models included. And there is something to that story. Earlier this year, when the Department of Defense designated Anthropic a supply chain risk and moved to drop it as a contractor, a federal court found the government's actions were retaliatory and meant to punish the company for protected speech.

29:03Antropic is still fighting that designation and last month it lost on appeal. But, I think the advocacy thing is a bit of a red herring. Even if Antropic kept its opinions to itself, the government risk wouldn't go away. The thing pulling the government in is the power of the technology. If you take this prospectus at face value, if the technology really is powerful enough to transform the economy and by their own account pose catastrophic risks to humanity, then you have just described the kind of capability that no government anywhere lets sit entirely in private hands. A quieter, more agreeable lab would likely face the same government risk.

29:51The filing doesn't spell this out. It talks about regulation and scrutiny and export licenses. It doesn't directly say the government may one day decide our product is too important to leave in our hands, but the export controls that pulled their models off the market and the supply chain designation they are still litigating are what the early moves look like. The far end of that logic is not a licensing regime, it's a government deciding that a technology this consequential belongs in some fashion to the state. And that brings us back to a point Robert Armstrong made about this whole affair.

30:31If you genuinely believe the rhetoric that this is a technology on the scale of the atomic bomb, then the honest question is not whether Antropic will be forgiven for being loud, it's whether a thing this dangerous can be an ordinary public traded company at all. They would not, he notes, have floated the Manhattan Project. For what it's worth, government contracts are only about 1 % of Anthropics revenue today, so the direct commercial hit so far is small. The risk, however, isn't about this year's sales, it's about who ultimately controls the technology. It wouldn't be that shocking today for the US government to expropriate the entire business.

31:18So we are left with a 240 ,000 word prospectus brimming with facts, but unfortunately almost none of them help us work out what the company is actually worth. Every number in it is backward looking, which is always the case with accounts, but the issue here is that Anthropix business is changing too fast for the past to give us any real insight into what the future might look like. As John Foley pointed out in the FT, valuing Anthropic on its historic numbers is a fool's errand. The company grew its revenue by more than 1300 % in the second quarter. If you assume it merely doubles every year going forward, it makes$630 billion of revenue by 2031.

32:09If it holds just half of its current growth rate, it makes$584 trillion, which is more than the GDP of the planet. These numbers quickly break your spreadsheet. The truth is that nobody knows what the company will earn in five years. As Aswath de Moderen pointed out, even Anthropik's own CEO has admitted how hard it is to forecast demand. When it comes to the future, they are as lost as you or me. And that is really the point of this whole story. Anthropic is a very impressive business. The bears who confidently announced that the company was on the verge of bankruptcy were entirely wrong. It eked out a real operating profit and it is building a product that people actually use and pay for.

33:00But the bulls who tell you that$2 trillion is a bargain are guessing just as wildly. We already know the price is built on sand because in the few weeks between the company's investor day and the filing, the talked-about valuation drifted from$2 trillion down to a range of between$1.5 to$1.75 trillion. That's half a trillion dollars of we're not quite sure appearing in a matter of weeks. It's also worth noticing what the people who know the most are doing. Anthropic has staggered its lockup agreements so that insiders can begin selling their shares almost immediately after the IPO. And at the same time, Meta is raising$95 billion and Alphabet just raised around$90 billion.

33:53The insiders, in other words, have looked at all of this and decided that right now is a very good moment to sell you their stock. Working out the stock valuation is nearly impossible because, as we've talked about before, this whole industry is passing the same money back and forth. Amazon and Google invest in Anthropic. Anthropic buys its compute from Amazon and Google. And Anthropic pays SpaceX billions a month for capacity that's still being built. As Aswet Demodaran put it, to value Microsoft you now have to value OpenAI, and to value Google you now have to value Anthropic. The entire sector is tied together in one very expensive knot.

34:38So is this an AI bubble? Well, the technology is clearly real, much as the internet was 30 years ago. But the internet gave us a collection of really hot stocks like Yahoo and Lycos and AltaVista long before anyone had heard of Google. And it's entirely possible new upstarts replace the hot AI companies of today, or that the AI labs struggle to monetize the amazing technology they've developed. That would be wonderful news for the users of this tech, and rather less wonderful for whoever paid$2 trillion for one of the companies providing it. Back in September, I ran Scott McNeely's old test on an Anthropic$2 trillion value, and it was impossible to justify.

35:28On any of these AI company multiples, there's a near mathematical impossibility of a reasonable payback period. This filing doesn't change that verdict. It just makes the reason clearer. The price isn't a lie, it's a guess. And Anthropic is guessing too. The one thing you can say for sure is that anyone who's claiming to be certain is selling something. Both the bulls and bears are guessing. An IPO is simply the moment when the early investors decide it's a good time to cash in some of their chips and leave it to the public to work out the price. If you buy in, you're betting that the age of miracles arrives before the$800 billion compute bill does.

36:15And if it doesn't, you can always hope the long-term benefit trust will save you, assuming they ever get around to hiring that fifth member. Thanks for tuning into this week's podcast, with particular thanks to my supporters on Patreon, whose support makes the podcast possible. If you know someone who might find it interesting, please send them a link to help the podcast grow. Have a great week and talk to you again soon. Bye. Thank you.