Monologue: Anthropic Is Not Profitable Unless You Remove Its Costs

is when said profit would happen. But the journal Anthropic generated four point eight billion dollars in sales in the first quarter, and in Q two, that's that five hundred and fifty nine million dollar operating profits home interesting, there's a lot of certainty, considering we're barely through the first half of the second quarter, and quite a specific number given the fact that June hasn't start, and all of these numbers are mysteriously leaking exactly while Alanthropic is raising

its funding round. And there's another important note from the story too. The journal adds at the very bottom of the article that it and I quote is unclear what accounting methods Anthropic has used to book revenue and costs. As the company isn't yet required to follow the financial reporting requirements of a public company. That's right, Anthropic is possibly going to be a bit to profitable for a single quarter on a non gap so generally is accepted

accounting principles basis. Anyway, I wonder how they did it, because based on the unhelpfully labeled diagram from the Journal's article, it appears, as I said last year, the Anthropics costs scale linearly with its revenues, except they magically didn't in the second quarter. How and I wonder if Anthropic will somehow stay profitable. Let's see if the journal has a quote, Oh, there we go, Okay, the company might not remain profitable for the full year, as it plans spending increases due

to its fasting needs. Interesting. That's very interesting. So Anthropic may be profitable very specifically in the second quarter of twenty twenty six, but might not be afterwards. It's almost as if it found a way to specifically cut its

costs in May and June somehow, because it did. Remember that deal Anthropic sign with SpaceX to take over Colossus one, Well, it's also extending to Colossus two, and they're going to be paying SpaceX one point two five billion dollars a month starting in May and June, and in those two months they're going to have reduced fees. You know, the quarter in which Anthropic is magically profitable, the one with

the lower costs ah per SpaceX is s one. Pursuant to its agreement, Anthropic will pay SpaceX one point two to five billion dollars a month through May twenty twenty nine, with capacity ramping up in May and June at a reduced fee as fifteen billion dollars a year in compute cost but due to an indeterminately discounted level for the precise months that Anthropic is using to tell its investors

in the media that it has an operating profit. Five hundred and fifty nine million dollars in operating profit in a three month period is absolutely possible when you're not paying for all your costs. While I wouldn't say this is cooking the books, I would say it's definitely a Shiatsu grade massaging of the numbers. Anthropic is deliberately leaked a quarterly profit, and I'm doing air quotes where it

knows it can suppress its costs. Specifically made sure that the journalist gave it an out of costs might increase and released it on the day of Nvidia's earnings as a means of keeping the AI bubble inflated. Nothing has changed. If Anthropic was paying the full rate for its compute in those two months, its economics would shift right back to where it's always been. Per my reporting from last

year on its aws costs. A business that has its costs linearly increase with its revenues, I also severely doubt that Anthropic managed to make the cost of running their services profitable in the space of six months, per the information. In January, Anthropic missed on its gross margin projections to twenty twenty five, saying that its inference costs were twenty

three percent higher than the company had anticipated. How did Anthropic, who faced a massive influx of new business to the point that it was forced to buy more compute from elon fucking Musk, suddenly have its revenue outpaced its costs. Have had a few guesses other than the obvious way in which they reduced their costs. Number one, for large enterprises, they're taking prepayment of tokens, so fifty million dollars intended to be spread over twelve months that it's taking us

upfront revenue. This would both inflate revenue numbers and depressed costs because Anthropic wouldn't have actually provided the compute necessary to earn that revenue. Yet perfectly legal, because this isn't non gap. This is non gap accounting like you could just you could say whatever in a real company or

a public company, that would be considered deferred revenue. Anthropic is already offering discounted tokens for Claude users too, through the by Extra Credits page on their accounts, with discounts ranging from ten percent to thirty percent. It again, maybe booking this upfront rather than saying, okay, let's book this as the person uses the compute. They could also be front loading annual commitments of basically any kind, subscriptions to

Claude enterprise team agreements and so on. And they could have deliberately ratcheted downtraining to ease the burden on its infrastructure to provide inference. But if I'm honest, the revenue side is where the real problems lie. So Anthropic has said it brought in four point eight billion dollars in revenue in the first quarter of twenty twenty six and projects to ten point nine billion dollars in Q two twenty twenty six. This is pretty tough to reconcile with

previous reporting. On February twelve, twenty twenty six, Anthropic claimed it had reached fourteen billion dollars in annual recurring revenue. As a reminder, ARR is the accounting tool largely used by startups but some public companies too, where a snapshot of a single month's income is taken and multiplied by twelve. This gives you an implied monthly revenue of like one

point one six one point one seven billion dollars. On March third, twenty two, twenty six, Warrio Ama Day would claim Anthropic had reached nineteen billion dollars an ARR, so about one point five to eight billion dollars per month. Three days later, on March sixth, Krishna Rao, chief financial officer of Anthropic, would declare under oath in a court filing that Anthropic had brought in revenues exceeding five billion

dollars to date, so just to be clear lifetime revenues. Also, keep in mind that the Information had previously reported that Anthropic had four point five billion dollars in revenue in twenty twenty five, which already puts US at the limits of credulity. While boosters may claim that exceeding could mean

literally any number they want above five billion dollars. I found it doubtful that the CFO of Anthropic would, under oath, lead the court to believe its business was thirty to forty percent smaller than it was, especially when trying to convince it that the damage of being labeled a supply chain risk would ruin its business. They would want it to seem bigger than it is, not smaller. And at this point it's impossible to reconcile that twenty twenty five

point with that five billion dollar number. No one wants to talk to me about it. None of the journalists involved, no no analysts. That no one wants to talk about this at all. It makes them uncomfortable and angry, I assume,

probably because it's impossible to reconcile. If we assume that the arr claims made by Anthropica correct, we can presume that it made revenues of roughly two point four to two point five billion dollars in March, given that it claimed it had thirty billion dollars of ARR and April sixth if you get in confused with the numbers. By the way, there's a newsletter attached to this. Nevertheless, when you add up all those arrs, you get to about five point two five billion dollars, which is in excess

of what the Wall Street Jurnal has said. And in some world maybe there's a way of cherry picking using particular periods to the point that the arrs makes sense and would actually be in the region of four point eight billion dollars. Fine, but they don't make a lick of sense when you bring up what Christian to Row

their CFO said. If we believe anthropics leaks, putting inside all the R figures for a second, this means that Anthropic A made over ninety percent of its lifetime revenues in the first quarter of twenty twenty six, and B made virtually no revenue its previous years, and c leaked completely imaginary run rates of the media for years. While I acknowledge that anthropic abys to have grown significantly, that level of stratospheric growth does stretch the limits of their credibility. Moreover,

the fact that the previous era. ARR figures are inconsistent with the leaked charts from Anthropic. Further raises questions about the credibility of well any numbers from the company. The only real defense that anybody has here is that Krishna Rau under oath low balled the US government and adjudged to such a dramatic extent that he hid an excess of four billion dollars in revenue. And as I've discussed before, and Flying Penguin helpfully collated, which I'll link in the notes.

Adding up anthropics previously reported ARR from January twenty twenty five to my twenty twenty six already gets us to around six point six six billion dollars. Now, I know there are going to be some boosters who hear about this and they're going to be like, well, this is proof there's a business model emerging from AI and I'm I'm sorry, that's not what's happening. Dario Amadianelon Musk worked out a sweetheart deal framed as a ramp up that

allowed Anthropic to artificially depress its costs. I also question how much of a ramp up there really was, or what Anthropic's actual compute constraints were because Anthropic immediately loosened rate limits for Claude subscribers on announcing the deal, meaning that it immediately started having higher inference costs, which somehow led to it making a higher profit or did. Musk has literally described in its s one have SpaceX charge Anthropic less for two specific months to make the numbers

look better. In July, Anthropic will start paying SpaceX one point twenty five billion dollars a month or about fifteen billion dollars a year, on top of all its other compute deals with Google, Amazon, the Microsoft. If we assume that its spend is comparable on AWS and Google Cloud, and it's most assuredly more, that means Anthropic is spending around three point seventy five billion dollars a month in compute costs or eleven point twenty five billion dollars a

quarter or forty five billion dollars a year. I'm one hundred percent sure it's more than that. There's also a very compelling argument that the Anthropics costs will increase and will eat up that profitability. To once again repeat the quote from the Journal, the company might not remain profitable for the full year as it plans spending increases due to its vast computing needs. Also have to wonder this company's profitable. Just humoring here for a second. If you're

so profitable, why aren't you ipoing? Why not take this to the public markets, unless, of course, your only non gap a bit to profitable based on a two month long discount specifically covering the period in which you're profitable. I will give Diario Amida credit. Nobody does it better. Nobody does financial engineering and press lead information war better

than our Anthropic. The utter willingness of the press to eat up incongruent numbers and the eagerness of many to jump up and find obtuse ways to explain away the obvious problems is only made possible when a company's perfected the art of manipulation and ingratiation of those who want to feel like they're first. If you take this as an incontrovertible proof that Anthropic is profitable, you are deliberately ignoring the blatantly obvious ways these numbers are being massaged.

We've got its CFO saying numbers that don't match up with any of their leaks or their own marketing materials. In the aggressive and deluded way in which people ignore them is equal parts frustrating and depressing. So I want to speak to any AI boosters in the audience, and I want to speak with a little more empathy than usual. If you want Anthropic to win, you should be just

as skeptical of these numbers as I am. You should want to smash my face in the tarmac with the most crystal clear impossible to argue with numbers, but reft of asterisks or discounts from suppliers or obfiscated accounting metrics. You should want better from your heroes. If you truly think this company is amazing, unstoppable and leading the tech industry to a glorious era of innovation, there shouldn't be this many questions and the metrics shouldn't be this murky.

Every other time when a company has played this level of silly, weird bullshit, it's led to disaster. For example, we Work claimed to be profitable since the second month of its operations and repeated those claims of profitability throughout its existence until it turned out it was only profitable if you remove things like some of the costs of doing business. And I get where you're so defensive, and

I get where you want this to work. A lot of you are very excited about generative AI, and being excited about it has given you a tremendous community of equally excited people. I get that you like these tools, and I need you to know that these companies are

laughing at you. Anthropic timed this lead to focus on a specific quarter where it artificially suppressed costs and gave you the flimsiest proof imaginable, specifically crafted for you to share it as a triumph and spread the idea that AI labs are actually profitable when their core economics haven't changed. Costs increase linearly with revenue, and will continue to do so in perpetuity. I genuinely can't wait for Open AI and Anthropic to file that goddamn s once