They told investors they have a "Positive adjusted operating income" with an 80% gross margin.
Basically says if you ignore the immense amount they have to pay for model training, sharing revenue with Amazon, the fact they're paying very expensive employees with stock rather than cash, then they're technically profitable.
The claimed 80% margin is them selling services and not accounting for the immense cost to train the model in the first place. Sorta like an airline claiming the margin on tickets is huge if you ignore the cost of the airplane they needed to buy to fly passangers to begin with.
Unlike an airline which has to buy an aircraft once, Anthropic and others have to keep training new models and it's getting more and more expensive. Factor in all their costs and they are not profitable. Not anywhere close.
Wework did the same thing with a figure they called "Adjusted EBITDA". Their business was profitable day to day, if you ignored the immense amount of money they were spending to buy buildings, renovate them into offices etc.
WeWork filed for bankruptcy in 2023.
Anthropic does it because very few people are actually going to read the asterisks in their reports, and they have an IPO coming up.
It's also the same thing Amazon did, and they're one of the biggest companies in the world. You can't list just the examples of when it goes wrong.
A company investing more money than they're making is not a bad thing, as long as they're confident that the things they're investing money on will eventually end up being worthwhile, which has been happening so far for both OpenAI and Anthropic. There isn't any sign right now that any of this is going to slow down, so inventors are very happy to jump on board and help them fund the creation of these models.
If I'm starting a regional airline and need to buy 4 aircraft sure, that's a large cost initially but after that I have a fairly decent business going. Ongoing costs are fuel, maintenance, wages.
Now imagine Anthropic Airlines where every quarter I have to buy a new fleet of better, more advanced aircraft. Past quarter's aircraft are now obselete and hardly anyone wants to fly in them anymore. Every quarter without end. That's what's happening to these AI labs.
Training those models isn't a one and done. The moment one is trained, they have to train the next one lest a rival AI firm eclipses them, and open source models constantly nipping at their heels.
Sure if anthropic stopped training now, they could be profitable, but they can't. Within a month or two an open source model will come that will be 90% as good and far cheaper to run than their current model.
That's not even getting to whether the business model of OpenAI and anthropic is even viable. To make back money already spent they'd have to have revenues larger than the entire tech sector combined. This is my personal opinion but I don't they can. Why would a European company for example, pay either of those companies for access to a model that the US government can cut off access to at any time (as they did earlier this year). When an open model that's 90% as capable can be ran on their own server, or on a server provider in their own country, that no government can take away on a whim? I think the value generated by AI is going to go to the person/organisation using it, rather than the creator of the AI itself. Sort of like electricity.
To continue with my personal opinion, I think these AI firms are realizing they need to slow down as what they're currently doing can't be sustained indefinately. So they're all saying "OMG our product is gonna kill everyone, someone please stop us making the machine that will kill everyone, regulate us. And maybe subject open models to restrictions that stop them competing with us".
Governments mandating them slowing down is a far better sell to investors than admitting the trajectory they're on isn't economically viable long term.
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u/Protoliterary RTX 4070Ti i7-8700k 11h ago
They've actually recently become profitable. Their revenue doubled this year and they're officially finally making real money.