Anthropic has raised $30B in a series G funding round. This puts their valuation at $380B.
That’s great news. It means I get to keep using Claude a little while longer. 30 billion dollars should keep Anthropic afloat a little longer. How much longer? If the numbers we have are even reasonably accurate, maybe half a year. Maybe a year? Maybe quarter? Who knows? That is how much capital they are torching.
In the announcement blog post, Anthropic brags about their revenue of $14B, saying that this represents a 10x revenue growth every year since they made their first revenue, which sounds impressive, until you put the numbers into perspective.
A $380B valuation puts them ahead of Procter & Gamble who are number 29 in terms of market cap according to Companiesmarketcap.
Now no one can dispute that Anthropic has a good product, but that it should be one of the world’s biggest companies seems a little suspect. It is deeply unprofitable and in an extremely fast-changing and cutthroat market.
Let’s think about it like this: Anthropic makes a product that makes other companies more productive. Is the sum of this productivity greater than the entirety of Coca Cola? AMD? Alibaba? Chevron? Toyota?
And if you think that AI is simply so super amazing that surely it is, how much of that productivity comes back in terms of cold hard cash that they charge for their products, and how much of that money is left after operating expenses and cost of compute? The answer is currently unknown to the public, but we know that it is a massive negative number.
Yeah we lose on every customer, but we make up for it in volume.
Anthropic is now worth about $9B more than the market cap of Alibaba, whose revenue was $140B, literally 10x Anthropic’s revenue, and this is while Alibaba’s earnings are likely the same as Anthropic’s annual losses. Explain that. Sure, AI has great potential, but its potential seems to be causing people to lose their minds and think that this justifies any valuation, but that’s not anything works. Even if Anthropic has massive potential, what if it’s true size once the dust settles is only (yeah only) the size of Alibaba, a $371B company with $140B revenue and pre-tax income of $22.7B and over 124,320 employees?
If the true size of Anthropic is Alibaba’s size, then the investors are massively screwed because Anthropic is a capital furnace, unlike the other companies of that size. Why would anyone want to invest in Anthropic when they could invest in Alibaba, a company that actually makes money? Anthropic is simply priced like one of the biggest companies in history despite being an endless hole of capital in an unsettled market.
This valuation is therefore based on Anthropic’s potential, but anyone with a brain can see that Anthropic’s products, great though they are, will never be able to live up to these numbers. It is simply impossible, even with the current price. And at some point the price will have to go up, because no one can lose this amount of money forever.
What happens when Anthropic has to make money? How many people will subscribe to Claude when the price increases 2x? 3x? 4x? AI is a rapidly changing market and Anthropic is up against massive corporate titans with endless pockets. Anthropic’s investors simply do not know what will happen to the business when they have to massively raise the price and simultaneously compete against the likes of Google and Microsoft who may have caught up to them at that point. Customers can easily switch to a competing product.
Thus the only way the investors can make money is to take Anthropic public, but as I mentioned above, Anthropic is insanely overvalued and bleeding money at a rate that would make God blush. Anthropic’s stock is fundamentally uninvestable at a $380B valuation, you’d be investing in an overleveraged money losing company when you could be investing in growing profitable companies at that price.
Anthropic and OpenAI cannot go public, because that would mean opening their books, and I think that the mood on the market has changed. The hype, while still at an irrational stage, has cooled enough that investors no longer can ignore that these numbers make no sense. I think that these Private Equity guys are gambling that the hype is still at its peak, but are failing to read the room. People are still massively overvaluing AI to an absurd degree, but we are also seeing serious questions being asked about how these companies are going to make money.
But at least I get to keep using Claude for a little longer.