Frontier labs like Anthropic and OpenAI are at the bleeding edge of artificial intelligence. They are literally haemorrhaging cash even as their spending, and revenues, soar.
Leaked details of Anthropicโs prospectus for its initial public offering, published by Reuters, show that its revenues are soaring indeed. From $US4.6 billion ($6.6 billion) last year, its sales jumped to more than $US16 billion in the first half of this year.
While the leading frontier AI lab says it will have its second successive quarter of profitability at an operating level, in the September quarter last year it lost more than $US8 billion at an operating level โ up from $US2.98 billion in 2024 โ while reporting a net loss of $US42 billion.
It spent $US7.33 billion on compute and infrastructure last year. Now, it says, it has plans and commitments to spend another $US518 billion on cloud services and data centres in future.
The numbers are staggering and underscore how reliant the AI pioneers are on access to external capital to fill in the funding voids created by the gulfs between their spending and revenues on the one hand, and their ever-escalating valuations to maintain that access to capital on the other.
Anthropic plans to raise up to $US100 billion in its IPO, at a valuation of about $US2 trillion. In a $US13 billion funding round this time last year, it was valued at $US183 billion. Earlier this year its two latest fund raisings valued it at $US380 billion (February) and $US965 billion (May). The valuations of AI companies inflate faster than their revenues.
If AI wipes out the human race, the question of how much AI companies should be worth would become academic, assuming there was anyone left who could be bothered to attempt the calculations.
Without the ability to regularly attract new capital, those AI companies without the vast legacy revenues of the hyperscalers โ Amazon, Alphabet, Meta, Microsoft and Oracle โ would implode under the weight of the ever-increasing investment required to remain at the leading edge of AI developments. Even the hyperscalers are showing signs of the strain.
Still, it is conceivable that Anthropic could be valuated at $US2 trillion in its IPO, which appears likely to occur in November.
Elon Muskโs SpaceX, which contains a number of revenue-generating businesses, including a highly profitable Starlink satellite business, raised about $US85 billion in June, valuing it at $US1.78 trillion.
SpaceXโs current market capitalisation is a touch over $US2 trillion, so Anthropicโs ambition of attracting a similar valuation while gaining access to a bigger and more permanent conduit to equity providers isnโt completely far-fetched.
A concern for aspiring investors (and the rest of us) in the IPO was its reiteration of warnings its executives have previously given that AI models could pose โcatastrophic or existential risks to humanityโ.
If AI wipes out the human race, the question of how much AI companies should be worth would become academic, assuming there was anyone left who could be bothered to attempt the calculations.
Donald Trump, of course, continues to dismiss the dire warning from those actually developing the AI models, whose agents have a habit of routinely escaping their โsandboxesโ to do things that their developers never intended and, indeed, have gone to great lengths to prevent โ like hacking government and private sector databases.
โI will never stifle the growth [of] a technology that will be bigger than the industrial revolution,โ Trump said on Tuesday after lunching with leading technology executives, including Anthropicโs chief executive Dario Amodei, Nvidiaโs Jensen Huang, and Musk.
โI will never stifle the growth [of] a technology that will be bigger than the industrial revolution.โ
Donald Trump
Trump believes self-regulation, the US Justice Department and the FBI will be sufficient to hold to account the sector and โbad actorsโ seeking to exploit AIโs capabilities โ even though it is the leading AI companies like Anthropic and OpenAI that warn of a potential catastrophe and vehemently urge a slower and more cautious approach to development.
While the details of Anthropicโs business published by Reuters were limited โ thereโll be more information once the prospectus is formally released โ one insight that does emerge from it is how narrow the foundations of Anthropicโs business are.
It says nearly a quarter of its revenues last year came from just two customers, and that 47 per cent of its sales to customers last year transited through its cloud partners Amazon and Alphabetโs Google, which handle distribution and collect customer payments for it.
Both those companies are also major investors in Anthropic, suppliers of compute โ and rivals.
Those layers of tangled relationships are a common feature of the AI sector, where the sheer scale of the funding challenges has forced competitors to co-operate, producing layers of interdependencies and mutual vulnerabilities.
Anthropic acknowledged that the concentrated nature of its partnerships โcreates complex dynamics that could give rise to conflicts of interest and adversely affect our access to computeโ. It could also, given that its competitors are collecting at least half of its customersโ payments, have a big impact on its cashflows.
Itโs a fragile and vulnerable structure when the lifeblood of the sector โ that ability to raise new equity and debt to fund the hefty and ever-increasing capital expenditures โ is the ability to continue to demonstrate high enough rates of growth in revenues and cash generation to convince capital providers that the yawning gaps between spending and revenues may eventually be closed.
The hyperscalers alone will have capital expenditures of about $US800 billion this year, according to Goldman Sachs, with another $US1.1 trillion or so likely next year. If they are to make acceptable returns on their capital, they need to see ambitious and exponential revenue growth rates.
Trying to calculate the total addressable market for AI is an impossible task โ the estimates range from about $US5 trillion to $US30 trillion โ and the potential margins and profitability of individual AI companies like Anthropic, even more so.
What will businesses and consumers ultimately be prepared to pay for AI? Will the โopen weightโ providers, offering โgood enoughโ AI alternatives to the frontier labs and hyperscalers at fractions of their costs, destroy the margins that Anthropic, OpenAI and the US mega-techs need to validate their investments?
Will the equity and debt markets remain open to the companies long enough for them to achieve something approaching financial self-sufficiency?
The ructions in the US bond market, where yields across the curve are now at or around 20-year highs and still edging up, are a threat to the sharemarket broadly and to AI companies in particular as the tech firms have become increasingly reliant on debt that is now, even for the hyperscalers, becoming increasingly expensive.
The spreads over Treasuries of hyperscale debt have been blowing out, as have the costs of credit default swaps for AI data centres.
As its revenues scale up, the entire sector is vulnerable and will remain vulnerable for at least the next few years to any adverse event, either at the macro level or at an individual entity level, due to its incestuous financial relationships.
Anthropic may well be worth $US2 trillion, or at least valued at that amount, or multiples of it.
For the moment, though, and probably for at least the next few years, it is the possibility of AI and capital marketsโ preparedness to capitalise that possibility โ rather than its current, red-inked reality โ that makes an IPO at that level feasible.
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