Anthropic’s enterprise growth may not cover its funding needs

Transcript

Transcribed by machine (Whisper) from the episode’s audio, so a word may be off here and there.

1. 7:13

   it around. I mean, what did you make of Elon's comments, and to what extent does it say something about Anthropic's future? Yeah, money is finite, right? So we're focused a lot on the spending, but someone has to pay for all of this stuff in order for it to work out. Anthropic has, going in its favor, rapid growth in what it calls enterprise business, what everyone calls enterprise business. So selling services to companies who tend to be able to pay more than consumers, who tend to be stickier, to use the jargon, than consumers.

2. 7:44

   Of course, the money there is limited too. But Anthropic does have a head start. Grok is very much, at this point, a consumer product. If you're trying to sell consumer products, how do you fund them? You can either charge a subscription a bit or you start looking at things like advertising, which is, of course, how Google pays for search. But there again, the money is finite. Even companies like Google and Meta are now starting to spend beyond their means to fund this AI.

3. 8:08

   So they can at least fall back on enormous advertising businesses, which Anthropic and OpenAI cannot. So at some point, yeah, the question is, do you have to reduce the level of service because you just can't afford to pay for all those tokens? We'll have to wait and see. But Anthropic is leaning hard into the enterprise space, the idea that companies will pay for its products because they deliver some kind of measurable advantage that isn't otherwise available.

4. 8:35

   Just looking at their compute costs in the current quarter. So, you know, in the first quarter of 2026, it was $3.3 or almost $3.4 billion. The next quarter, it was $5.6 billion. dollars this quarter it was 9.9 billion dollars so it's getting progressively larger but also the revenue is expanding dramatically as well which makes you think, oh, it's okay. But I mean, it seems as though these compute commitments that are coming down the line are going to absolutely balloon the compute costs. The quarter-on-quarter growth rate for revenue has fallen to something like 47%, 48% in these latest Q3 numbers. But the quarter-on-quarter growth in compute costs went up almost 80%. So at the moment, that's increasing more quickly than their revenue it seemed as though when the ipo came that when the original filing was

5. 9:27

   came out you know there was a lot of i would say size of relief at the fact that their operating losses had come down so dramatically from last year you know came down to something like 700 million dollars negative operating loss uh and the previous year was more than two billion dollars in that same period it seems as though it's going to continue to go up i guess the question becomes do we actually think that this company is going to become profitable in the near future? Is it actually going to be profitable in 2027? Which I think was something that a lot of people seemed to believe coming out of that first filing. I wasn't sure of it myself. But what do you think?

6. 10:09

   In the second quarter, they, on an operating level, had achieved a positive profit, I think, and that's now swung back to a loss. And then on an accounting basis, their loss is obviously huge because they have this sort of bizarre non-cash paper loss based on the value of securities and derivatives that they've issued. So predicting when it gets to profit is also, again, really hard. I sort of feel like I'm abdicating my responsibility as a financial journalist and someone who analyzes stocks by saying that it's just who knows.

7. 10:38

   But I really do feel with this company, you are being asked to predict things that are impossible to predict. You could argue that this company doesn't really belong in the sort of sausage casing of a traditional public company because these things are so variable. But here we are. I think ultimately Anthropic will tell us what it thinks it's worth and we will pay it or we will not, depending on whether we think that Anthropic is going to be one of the winners.

8. 11:03

   But in terms of are they going to achieve an operating profit? Well, you'd hope so. If they're cash burning, then they have to find the cash somewhere else. They have to plug that gap elsewhere. One option is by doing it through debt. but as we've heard they may not have an investment grade credit rating which will make that more expensive and more difficult the other is to just keep raising more equity maybe a bit of both so there is going to be a lot of pressure on them to show that they can self-sustaining from a cash flow perspective and at the moment they are not yeah it seems as though i mean they're going to go out and raise close to 100 billion dollars in this ipo that's not going to cut it i don't think i don't i think they're going to need to raise a lot more unless their revenue can just absolutely skyrocket over the next year and be so much larger than the

9. 11:49

   amount they're spending i i just i i don't see a way in which that's going to be enough to get them to get them by over the next several years. So it seems as though they're going to have to raise more money, presumably debt. And as you point out here, we now know, according to the Financial Times, that Blackstone told investors that Anthropoc is not going to get that investment grid rating that we all thought that they were going to get. It's going to be a high junk rating.

10. 12:14

    How much, in your view, does that matter? To what extent should investors really be paying attention to that i mean being able to raise funds cheaply and rapidly is really important everyone is doing it meta platforms was one that we found out last week is doing a big equity raising uh because this this is a race everyone wants to everyone wants to beat their rivals and you do that by throwing money into the furnace at this point so not having an investment credit rating just makes that process more expensive this is all stuff that should be this is not to say that anthropic will fail it's not to say that it won't be a you know one of the winners in the ARAs, but it should all factor into the amount you're prepared to pay for the shares when it tells us what the price range is. And my fear is that people will just

11. 12:59

    look past that and see this is a kind of scarcity play. There's only one anthropic I have to get in and that would be potentially very risky for them. John Foley is head of the Lex column at the Financial Times. John, always appreciate your time. Thank you. Thanks.