Anthropic's Q3 Results Are In — The Costs Are Exploding

Anthropic

Across the shows: 81 speakers in other episodes, 99 bullish and 64 bearish calls, past 30 days

• Ed Elson · Prof G MediaBearish

  Anthropic's compute costs are outpacing revenue growth, so it will likely need far more capital than its IPO raises.

  Compute costs rose from about $3.4B in Q1 2026 to $5.6B and then $9.9B in Q3. Quarter-on-quarter compute cost growth was almost 80%, while revenue growth slowed to about 47%, so costs are rising faster than revenue. The operating loss, which had shrunk to about $700M, is expected to keep rising, and Q2's operating profit has already swung back to a loss. Anthropic's $895B in spending commitments, with nearly $70B due in the next twelve months (more than its annualized revenue), means compute bills will balloon. He assumes at least $100B a year in spending, which he calls conservative. The roughly $100B IPO will not be enough, so Anthropic will need to raise much more, likely through debt. He cites Musk saying Grok's serving cost was unsustainably high relative to revenue as evidence of the same pattern across labs. He is less sure that Anthropic will reach profitability in 2027.

  “the quarter quarter on quarter growth in compute costs went up almost 80%. So at the moment, that's increasing more quickly than their revenue.”at 9:44

• John Foley · Financial TimesUncertain

  Anthropic's IPO price should reflect unpredictable revenue and financing risks; investors chasing scarcity could be overpaying.

  Revenue growth rates are so high that extrapolating next year's growth is a fool's errand, and the $895B compute commitment may grow further. Anthropic's guidance of about $200B revenue in 2028 would justify a roughly $1.4T valuation if hit, but he says it is almost impossible to predict. Anthropic's enterprise business is a genuine advantage (companies pay more and are stickier than consumers), and the discounts (about 3% of revenue) look small. Against that, operating results have swung back to a loss, the accounting loss is inflated by non-cash items, and a weaker credit rating would make debt more expensive. Anthropic must show it can self-fund, and he thinks the pricing should reflect these risks. He fears investors will treat it as a scarcity play, which would be risky for them.

  “This is all stuff that should be reflected... it should all factor into the amount you're prepared to pay for the shares when it tells us what the price range is. And my fear is that people will just look past that and see this is a kind of scarcity play.”at 13:17

Alphabet

Across the shows: 50 speakers in other episodes, 40 bullish and 29 bearish calls, past 30 days

• Deirdre Bosa · Deirdre Bosa LiveBearish

  Alphabet's AI Overviews have not yet turned into advertising gains, and slowing core businesses worry investors.

  Alphabet's core businesses are slowing, and investors are focused on them, which she says explains the large declines. A few years ago the worry was that Alphabet would cannibalize its own search business. It had AI Overviews and was going to figure out the advertising piece, but she says that has not happened yet.

  “A few years ago, we were talking about Alphabet cannibalizing itself, but it had AI overviews. It was gonna figure out this advertising piece. That actually hasn't happened yet.”at 22:32

NVIDIA

Across the shows: 52 speakers in other episodes, 44 bullish and 17 bearish calls, past 30 days

• Deirdre Bosa · Deirdre Bosa LiveBullish

  Nvidia will be fine: it sits at the center of the AI trade and its GPUs have long useful lives.

  The sell-off is hitting names that rely on capital markets more than Nvidia does. She says NVIDIA is at the center of the entire trade, that GPU futures and insurance exist to hedge the asset, and that the lifetime of GPUs is lasting a long time. Mag Seven companies and SpaceX can still tap markets to fund AI spending, so the cohort is likely to be fine. The greater risk is to neoclouds rather than to Nvidia.

  “NVIDIA's gonna be okay. Right? They're at the center of the entire trade... and the lifetime of these GPUs is lasting a long time.”at 25:49

AI infrastructure & data centers

• Deirdre Bosa · Deirdre Bosa Live

  Debt-funded AI buildout is raising risk: borrowing is surging and fixed payments leave less room for error.

  Per Bank of America, total AI-linked debt issuance rose from nearly $400B in 2025 to about $655B this year, with about $1T forecast for next year. Hyperscalers used to be self-funding fortresses with huge free cash flow, but they are now tapping debt markets, and even Microsoft's self-funding claim sits alongside a $25B bond sale. Debt payments are due whether or not the AI spending pays off, so timing matters more and any slowdown hurts more. Demand may be enormous and supply-constrained, but the debt makes the build-out riskier. She sees neoclouds as the likeliest break point for the AI trade.

  “So this is just a huge change in how we're actually financing the build out. It means that companies, not just the [neoclouds], but some of our healthiest, biggest, safest companies are relying more on borrowing.”at 19:44

• Deirdre Bosa · Deirdre Bosa Live

  The hyperscalers' free-cash-flow squeeze is temporary; consensus expects over $600B combined FCF by 2030.

  An FT chart shows the biggest hyperscalers' build-out spending eating into free cash flow, with some going negative. She argues the squeeze is supposed to be temporary. Wall Street consensus expects Google, Amazon, Meta and Microsoft to generate more than $600B in combined free cash flow by 2030. If you believe those numbers, she says, the current sell-off is an insane buying opportunity. She is presenting the consensus, not her own estimate, and frames it as a counterpoint to the bearish case.

  “Wall Street actually expects that Google, Amazon, Meta, and Microsoft are gonna be generating more than $600,000,000,000 in combined free cash flow by 2030. So if you believe those numbers, this is like an insane buying opportunity.”at 23:44

• Deirdre Bosa · Deirdre Bosa Live

  Cloud growth at AWS, Azure and Google Cloud shows AI demand is real and already paying off.

  She points to the big-tech fundamentals that people in tech focus on: AWS up nearly 40%, Azure nearly 50%, and Google Cloud more than 100%. She reads these as an indication that demand for AI infrastructure is there and paying off, even though Wall Street is focused on the core businesses that funded the build-out.

  “AWS up nearly 40%, Azure nearly 50%, Google Cloud over a 100%. That is sort of indication that the demand is there, and it's paying off.”at 25:49

Wealth, inequality & billionaires

• Mark Zandi · Moody's Analytics

  Most Americans own little stock, so AI stock moves barely affect their finances or how they feel about the economy.

  Three-quarters of Americans don't own stocks of any consequence, and many don't own homes. For them, what happens to AI stocks means nothing. The stock market can go up or down, and it doesn't matter to them. What matters is whether wages are keeping pace with the prices of what they buy, and for most people they are not.

  “three fourths of Americans don't own stocks of any consequence, and many don't own their own homes. So what's going on with regard to AI stocks means nothing.”at 30:59

US consumer

• Mark Zandi · Moody's Analytics

  Real wages are falling as inflation outpaces pay, so household purchasing power is eroding.

  After-inflation income has been falling over the past six months, and inflation is growing faster than wages. That means people's ability to buy things is declining, and they feel it. This is why consumer sentiment surveys are so weak and why the polling looks the way it does. About three-quarters of Americans don't own stocks of any consequence, and many don't own their homes, so for them the financial situation is tenuous. Zandi says their real standard of living is on the decline even if they have a job.

  “the picture is pretty bleak. I mean, real wages are going down. Inflation is faster than the rate of growth in wages.”at 31:31

US housing

• Mark Zandi · Moody's Analytics

  Fixed mortgage rates jumped above 7% from under 6% after the war began, making homeownership unaffordable.

  The benchmark fixed mortgage rate was below 6% before the war started and is now well above 7%. That is the rate most people think about when they consider a mortgage, and the increase makes housing and homeownership completely unaffordable. Higher credit card rates, home equity line rates and consumer finance loan rates add to the squeeze on households that don't own AI stocks.

  “the fixed mortgage rate... it was below 6% before the war started. It's now well above 7%.”at 32:12

Middle East & Iran

• Mark Zandi · Moody's Analytics

  The Iran war is the most immediate driver of rising inflation and interest rates.

  Among the policies hurting the economy, the Iran war is the most obvious and most immediate cause. Inflation and interest rates have risen pretty much since the day the war started on February 28. That rise is what has pushed fixed mortgage rates from below 6% to above 7%, and it is hurting households already squeezed by real wage declines.

  “the Iran war is the most obvious, most immediate. I mean, inflation and interest rates have risen pretty much since the day the war started back on February 28.”at 34:36

Tariffs & trade policy

• Mark Zandi · Moody's Analytics

  Tariffs act as a tax on American consumers, raising inflation and weakening economic growth.

  Tariffs do the same kind of damage to the economy as the Iran war. They raise inflation because they are a tax on consumers, passed through as higher prices, and that weakens economic growth.

  “It raises inflation. It's a tax on American consumers, raises inflation through higher prices, which weakens economic growth.”at 34:53

US immigration

• Mark Zandi · Moody's Analytics

  Heavy-handed immigration policy shrinks the labor supply, pushing up prices and weakening growth.

  Companies that rely on immigrant workers can't find enough people. To bring demand down to match the reduced labor force they can supply, they raise the prices of what they produce. The result is the same as tariffs: weaker economic growth and higher inflation.

  “the very heavy handed immigration policy, same result, weakens economic growth because many companies that rely on immigrant workers just can't get them, can't find those workers”at 35:07

US growth & recession risk

• Mark Zandi · Moody's Analytics

  AI investment is propping up US growth; without the AI boom the economy would look recessionary.

  The economy looks good if you are in the AI ecosystem or own AI stocks: the total value of US public stocks has doubled in four years since ChatGPT, and the wealthy are outspending. Zandi says the overall narrative about the economy would be very different without the AI investment boom and the surge in AI stock prices. Without it, the economy would be pretty dark and the conversation would be about recession. He grades the AI economy A-plus and the non-AI economy around a D, which averages to about a B-minus, but that average misses how most people feel.

  “The whole narrative about the economy would be very different today if not for AI... the narrative around the economy would be really pretty bleak. It'd be pretty dark. We'd be talking about recession.”at 35:37

US elections & politics

• Mark Zandi · Moody's Analytics

  Worsening economy for most Americans, blamed on Iran war and tariffs, points to a change in government.

  Zandi argues the economy is tough for most Americans, not all, and has not improved; it is getting worse. He says voters are connecting the dots to the Iran war and tariffs as the drivers of what they are seeing. He concludes this strongly argues for a change in government at the coming election, with the House very likely and the Senate possibly flipping.

  “So that would strongly argue that we'll see a change in government here on the other side of the election, certainly the house and very possibly the senate.”at 37:43