Michael Burry warns Anthropic faces massive debt and growth hurdles

The math of AI commitments

Investor Michael Burry is raising alarms about the financial scale of Anthropic's upcoming public offering. He argues that the company's contractual obligations are significantly higher than what was initially disclosed in its S-1 filing. While the filing listed obligations at $895.4 billion, Burry estimates the true figure sits between $1.05 trillion and $1.07 trillion.

This discrepancy arises because the disclosed figures exclude specific contracts tied to major partners like SpaceX, Google, and AMD. Burry suggests that when these are included, the company faces a mountain of debt that requires 'supranormal' growth to satisfy. He believes the company is essentially betting its entire existence on the hope that the market will continue to expand at an extreme pace.

To cover these projected payments, Burry calculates that Anthropic must hit specific targets in the coming years. He projects the company will need to cover $101 billion in 2027, $112 billion in 2028, and $127 billion in 2029. These figures represent a massive financial hurdle for a startup trying to maintain a 20% GAAP margin, which would require 16.1% sequential monthly growth.

Slowing growth trends

The investment community is closely watching Anthropic's recent performance as a barometer for the AI industry. According to reports from Stocktwits, the company's revenue growth has shown a noticeable deceleration over the last three quarters. Sales rose 144% in Q2, followed by 132% in Q1, but only 47% in the most recent third quarter.

Burry attributes this slowdown to the cooling of a trend he calls 'tokenmaxxing.' This refers to a period of intense, sometimes clumsy, spending on training and inference. As the initial frenzy subsides, the industry appears to be moving toward more targeted and resource-aware strategies. This shift suggests that the easy gains from rapid, unoptimized scaling may be reaching a plateau.

Despite these concerns, some experts remain more optimistic about the company's valuation. New York University professor Aswath Damodaran recently trimmed his estimate of Anthropic's equity value to $1.45 trillion. However, he noted that the Q3 numbers do not materially change his underlying thesis or his projection of $100 billion in revenue for the next 12 months.

Infrastructure and liabilities

Anthropic is currently making strategic moves to reduce its reliance on expensive short-term compute rentals. The company is launching a new initiative called 'Anthropic Direct' to build and operate its own compute infrastructure. This move is intended to give the company more control over its hardware needs and potentially lower costs over time.

However, Michael Burry warns that this shift could backfire by increasing the company's long-term liabilities. Building and maintaining physical infrastructure requires massive capital expenditure and creates a permanent overhead. He argues that this adds another layer of risk to a company that is already facing heavy contractual obligations from its existing partners.

The financial complexity is furthered by how contracts are categorized in official filings. Burry points out that the $120.5 billion SpaceXAI contract is excluded from non-cancellable obligation tables. He suggests that the company's true near-term spending commitments over the next 12 months could actually exceed $100.8 billion, rather than the $69.8 billion reported in the S-1.

The path to the IPO

The buzz surrounding Anthropic's S-1 filing has created a divide between bulls and bears in the investment world. Supporters point to the massive potential of the AI market and the company's leading position in model development. They see the high growth requirements as a necessary byproduct of building the next generation of computing technology.

On the other side, critics like Burry are highlighting the risk of a 'priced for optimism' valuation. If the company cannot achieve the 11.6% monthly growth Burry identifies as mandatory, it may struggle to meet its commitments. This creates a high-stakes environment where the company's survival depends on the continued acceleration of the AI economy.

As the IPO approaches, the focus will likely remain on whether Anthropic can maintain its momentum while managing its massive debt. The transition from a growth-at-all-costs startup to a stable, profitable public entity is a difficult path. Investors will be looking for evidence that the company can move from 'tokenmaxxing' to sustainable, efficient operations.