Investors eye Anthropic's public offering despite massive net losses

The financials behind the filing

Anthropic recently released its S-1 public offering document, which provides a detailed look at the company's financial health. While the company has not yet achieved a year in the black, investors are reacting positively to its core operating metrics. Specifically, the firm reported an adjusted operating margin of 10% for the six months ending June 30.

The document also reveals a substantial net loss of $80.7 billion for the first half of this year. However, a significant portion of this figure, roughly $72.4 billion, stems from non-cash accounting rules related to convertible debt. These rules involve changes in the fair value of derivative liabilities and simple agreements for future equity.

Despite these large paper losses, analysts suggest the underlying business remains resilient. Gil Luria of DA Davidson noted that the net losses are very small when accounting for stock-based compensation. He argued that the company is not actually destroying value with every AI query, contrary to some criticisms from the anti-AI movement.

Cash reserves and revenue growth

Investors are also looking closely at the company's liquidity and its trajectory of growth. Anthropic currently holds $112.4 billion in cash on hand, supplemented by another $19.3 billion held in various types of securities. These substantial reserves provide a significant cushion as the company prepares for its transition to a public entity.

The company's revenue growth did experience a deceleration between the second and third quarters. While the S-1 filing did not include a specific forecast for future revenue, reports from August suggested a run-rate of around $65 billion. Anthropic clarified that this run-rate figure is not a substitute for actual revenue or a guarantee of future performance.

The move toward an initial public offering comes as concerns grow regarding the rapid commodification of AI technology. Anthropic faces increasing competition from open weight models, which are models where the weights are made available to the public. This competitive landscape makes the company's ability to maintain its market position a key point of interest for potential backers.

A unique corporate structure

One of the most distinct aspects of Anthropic's filing is its status as a public benefits corporation. This legal structure means the company is not solely focused on maximizing shareholder value, which is the standard goal for most corporations. Instead, it is legally required to balance the pecuniary interests of its stockholders with the interests of those affected by its conduct.

The specific public benefit purpose identified in the company's certificate of incorporation is the responsible development and maintenance of advanced AI for the long-term benefit of humanity. This mandate could lead to atypical corporate behaviors over the long term. Investors may have to prepare for the possibility of lower-than-expected returns if these public benefits conflict with profit motives.

Luria noted that this structure is unusual for a company of this scale. By choosing this path, Anthropic is signaling that it intends to weigh the powers of its technology against its social responsibilities. This creates a different risk profile for investors who are used to the singular pursuit of profit in the tech sector.

Market impact and next steps

The announcement of the filing has already begun to influence the broader tech sector. AI stocks have seen a bump following the news, as the move sets the stage for a formal investor roadshow. This roadshow is expected to occur in mid-to-late November, leading up to the official public offering.

Several major players are expected to be key beneficiaries of Anthropic's move into the public markets. Luria specifically highlighted hyperscalers Amazon and Alphabet, along with the chipmaker Broadcom, as companies that stand to gain from the IPO. These relationships underscore the interconnected nature of the AI infrastructure and the hardware required to power it.

While the company warned in its filing that it may not achieve or sustain profitability in the future, the current sentiment remains cautiously optimistic. The upcoming roadshow will likely provide more clarity on how the company intends to navigate its dual role as a profit-seeking entity and a public benefits corporation. Investors will be watching closely to see how these priorities balance out in practice.