Anthropic’s $500 Billion Question
In this episode of Motley Fool Hidden Gems Investing, Motley Fool contributors Travis Hoium, Lou Whiteman, and Matt Frankel discuss:
- Anthropic's IPO filing.
- AI computing commitments.
- Meta's $95 billion fundraise.
- Neocloud financing challenges.
- Verizon's strong earnings.
- Starlink's wireless threat.
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This podcast was recorded on Oct. 26, 2026.
Travis Hoium: It's Anthropic S-1 day, and Motley Fool Hidden Gems Investing starts now. Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoium, I'm joined today by Lou Whiteman and Matt Frankel. Matt, we got some big news this morning. You broke this to me as I was driving my kids to school. The Anthropic S-1 is out, so I think we've been poring over this for the last couple of hours. I'm just going to throw this to you. What did you think?
Matt Frankel: Yeah, I've been waiting for this one for a while. I don't know about you. Not necessarily.
Travis Hoium: I think the whole market has been waiting for this one for a while.
Matt Frankel: Yeah, not that I'm necessarily going to buy the stock, but this is honestly the most impressive business I've seen filed to go public at the time of its S-1. We don't have the price yet. We don't know anything from an investment standpoint if it would make sense to buy the shares or anything like that. But just as far as the business goes, we had a few leaks about a week ago. The headline revenue number leaked; the $80.7 billion loss leaked to the Wall Street Journal last week. But we did get a lot of new things. Just to name a few that I was really focused on. No. 1, that loss is really misleading. It was a one-time charge relating to its convertible notes because those are more valuable now, so it's an accounting charge, not an actual loss.
Travis Hoium: Yeah, can we just explain that for just a second? When these private companies are raising funds, they typically do it through what's called SAFEs or convertible debt. Technically, it is debt that is on their balance sheet. Even though it is a venture capital investment, and it's intended to turn into equity eventually in the future. It just protects the VC's downside. That’s when these charges are related to that becoming equity. I'm not an accountant, but like you said, this is a non-cash charge, so basically nothing to be worried about at all.
Matt Frankel: Well, let's say that just to name a couple of numbers, you issue convertible notes that are convertible into common stock at a value of $100 per share. Your stock jumps to $500 per share. All of a sudden, those convertible notes are five times more valuable, and you need to account for that on your balance sheet, even though it’s not an actual loss; you’re not spending any money. It’s just to show that, honestly, it’s a good reason for a loss; your company has done well. After that accounting charge, the company is actually pretty close to break-even; even on a non-adjusted basis, operating income was negative $693 million. That was about 4% of its total revenue. That's not a bad loss for a company that's growing as fast as this. That's really one of the big headlines I've seen.
Travis Hoium: Yeah, Lou, it did seem like there was a lot of positives. We talk about these companies burning tons of cash, and I thought it was interesting that they have a ton of cash on the balance sheet, over $100 billion in cash on the balance sheet, and they're not really burning all that much of it, at least at this point.
Lou Whiteman: They're a lot closer to break-even than I think the narrative would suggest, which is really good news. Look, they better be, because, again, a lot of the stuff we knew, they have so many IOUs out there. If there's one, I don't know, yellow flag, but about 20% of Anthropic's total revenue in the first half came from just two customers; 20% isn't terrible. I have investments probably that it might be even more than that. But Travis, we've talked about this elsewhere, just how narrow is this and how broad this is. We can get into valuation, but the valuation talk assumes a much broader market. I agree with Matt. It's an impressive business. Whether it's an impressive stock, though, I think that's in the details that maybe we don't quite know yet.
Travis Hoium: Yeah, speaking of details that we don't know yet, there is nearly $500 billion, Lou, in obligations for future spending. They gave some details. Some of that is going to GCP, Google, Alphabet, some Amazon, some Microsoft, and then SpaceX. Those are, I think, the four that were specifically called out, with most of those are $100-plus billion-dollar obligations a piece. What we don't know is the time frame of those because that table was left blank. What spending is an obligation in 2026? What's 2033? Because some of these contracts go out all the way to 2036. How do you think about that? With the context of the other confirmation that we got is that third quarter growth number was about that 45% number that was reported a major slowdown in quarter over quarter growth from Q1-Q2. Now, most companies would love to grow 45% quarter over quarter, but it's at least something that investors need to think about not only if you're looking at Anthropic's IPO, but also all these other counterparties. They need to have a lot of growth to be able to reach these obligations that, by the way, they have to take or pay.
Lou Whiteman: Kind of. That's for the lawyers to decide. The thing about dealing with doing business with Google, Amazon, all these companies, is they have good lawyers too. Yeah, look, it's so dangerous to extrapolate growth rates from the past. It's also dangerous to extrapolate a one-quarter slowdown, as this is definitely true. The answer is, we don't know. The other thing is, is that as far as if you're looking at Anthropic right now, one of the reasons to get the IPO out the door is that is just another lever in which to raise money to meet these obligations. I think the gloom-and-doom, the dangerous scenario, is that it just falls off a cliff. Is just that it's not as good as we thought it was and for some reason it falls off. If it doesn't grow, I still think they can handle this spending. It's issues like again, valuation, profitability, all of that. I think they're in a decent shape to manage a lumpy growth trajectory, but yes, we are still assuming a lot of growth.
Matt Frankel: Yeah, so two quick points, just $131 billion of cash on the balance sheet, not including what they're about to raise in their IPO, which could be pretty massive. No. 2, the economics are actually very favorable. When I see, $500 billion of computing agreements, they were spending two dollars a year ago for every dollar in revenue they generated. They were spending two dollars on compute. This first half of 2026, they're spending 55 cents for every dollar of revenue they're generating. The economics are moving in the right direction. As long as they can afford to meet these obligations and their business continues to scale, the economics are going to get even better.
Travis Hoium: Okay, but Matt, here's the pushback. I was thinking about this this morning. Why IPO now? Because you mentioned it. They've got plenty of cash on the balance sheet. The business itself doesn't seem like it needs cash. Is there a reason to rush this in 2026? Is this just market conditions? Something we're hearing from a lot of different companies. A lot of IPOs are not happening because of "market conditions". What do you think about that? Because as public stock investors, we are exit liquidity for somebody, so you always have to think about why they're selling.
Matt Frankel: Well, for one thing, yes, they have enough cash to fund their growth now. That $500 billion in computer agreements, I don't by any means think that's going to be all of it. They could have other contracts; they’re anticipating a ramp-up in spending, which, if your business is growing 1,400% revenue-wise year over year, you’re going to have to spend more. As we mentioned earlier, it's just another funding mechanism. Right now, they have the private markets. It'll be another way to raise money. I wouldn't be shocked if they raised $100 billion in this IPO.
Lou Whiteman: You never want to go public when you have to. You want to go public when you want to. They don't need to tap levers they don't need to tap, but the point is that they are available to tap them. I think you look at that. Yeah, there's actually, Travis, I think the traditional, oh, we're just the bag holders for all the employees that want to get out. There are so many secondary markets around this private stock. I think that's actually less of a need now than it was. We learned management sold what, like, 5 billion dollars worth of stock in one of their rounds. There is a lot of liquidity here relative to a normal IPO. I get the concerns and I get the idea that, yes, there are people who are looking to sell. But I think those concerns while always true in an IPO are actually less so here, given all of the options they have.
Travis Hoium: Definitely going to be an exciting IPO and one that I'm looking to fill in some of those blanks that were left on the S-1. When we come back, we're going to talk about Meta potentially raising another $100 billion more than that in a moment.
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Travis Hoium: Welcome back to the show. The other company that's spending a lot of money on artificial intelligence is Meta Platforms. Lou, it is now reported, I guess, that they're going to be raising about $95 billion in stock offerings. This is something that investors are going to have to think about because Zuckerberg reportedly is not going to be losing any of his voting power in the company, but they need a lot of cash to be able to live out his AI vision.
Lou Whiteman: These are the Zuck Books that we heard about last week, this new class of shares with no voting power. Now, I don't want to be too cynical. Google does this. A lot of companies have done this or forms of this, so it's a way to do it. But yes, they are I think what it's 30 billion plus 65 in convertibles or something like that, where they are going to raise. We can get into the details of this, but the big picture thing is, for all the panic over the last few weeks about where's the money going to come from, here's a reminder that there's a lot of ways to raise money. The hyperscalers still are well within their power. We may be heading for a cliff. We may not be. I'm not here to predict future, but right now we are not at that cliff. The takeaway is they needed money. They were able to raise money. The music continues.
Travis Hoium: The other piece of this, Matt, is that over the weekend, Elon Musk said that the hyperscalers, the companies that have another business, are going to be fine. They're going to be able to fund their obligations as AI spending. But we have seen the capital markets start to close to some of the other companies. The neoclouds is what he was referring to, and I think he lumped in some 200 companies or so. A handful of those are publicly traded. But we've seen a bunch of those stocks decline. We've seen their yields rise. Now Meta is coming out and saying, hey, we're going to need more money. Anthropic is going to be public. It does seem like the market is going to be tapped in a lot of different ways and not everyone is going to come out from a position of strength.
Matt Frankel: Yeah, with Meta and the hyperscalers, I'm not worried that Meta is raising $95 billion. I'd be worried if they were unable to raise $95 billion, which is really what's happening with the neoclouds right now. CoreWeave it's a business that I really want to like. I think the neoclouds really serve a role and one take what Elon said with a grain of salt. There is competition.
Travis Hoium: SpaceX is effectively the biggest neocloud out there.
Matt Frankel: There is competition. Take it with a grain of salt, but CoreWeave does have $52 billion of debt. It's hemorrhaging money. They raised more than $35 billion this year and really the banks closed. There seems to be a lot less appetite for AI funding without actual operating cash flow to back it up. With some of the hyperscalers, they have that. No one's going to question Google's credit rating right now. But when it comes to the neoclouds, it's not surprising that some of the questions, like we just asked for Anthropic, which is a much stronger financial company, where are they getting the money to fulfill all their obligations, and it's a real question with these neoclouds.
Lou Whiteman: I'm curious, I would actually love for CoreWeave to go to markets now with a debt offering just to see if it is closed or just how expensive it is. It's dangerous to read the secondary market. There's definitely directional knowledge to be gained in the secondary markets for debt, but I don't know if it's closed. It's definitely less open. I think it is worth noting too, though. Elon definitely I think diversification helps, period, and I think he's right there. It's also self serving. Some of his statements, I think, supports the neoclouds. SpaceX is consciously making short term deals on their compute power. They are doing that because they are saying we think the cost of compute will only go up from here. Now mind you, Amazon is taking the opposite side of that bet so that is not a settled debate, but if the cost of compute is really going to continue higher to the extent that it's not wise to sign long term contracts, that supports higher earnings over time for the neoclouds, which can support more fundraising through debt, I think. I think it's, yes, there are going to be winners and losers. Diversification helps. All of this is true. Right now, I would not want to go out today and try and raise money. I'm not convinced that CoreWeave couldn't come to market a month from now and raise money, so we'll see.
Travis Hoium: Yeah, for perspective, the debt that Lou is talking about issued at about 9% yield and currently trading for about a 15% yield. That's what we talk about when we say debt markets are closing. It means they're demanding more yield that makes the business a little bit iffy for that financing costs. When we come back, we're going to get to the big earnings report for the day. That comes from Verizon; more on that in a second.
Welcome back to the show. It is a huge earnings week. We're going to be covering that more throughout the week. But for today, we get Verizon Matt. I looked at the numbers this morning. They look pretty solid, and still the stock's down about 2.2% today alone over the past week over the past month, down about 6.5%. A lot of that is because people are worried that Starlink is going to be coming to market. What did you think from the numbers?
Matt Frankel: Yes, the numbers look great. Verizon, just to name a few of the below the headline numbers, postpaid phones, net additions were over 400,000. That's the best in five years for a Q3, added 137,000 net accounts. That's after accounting for Churn and things like that. That's the best in more than a decade. People are still adding subscriptions to Verizon. Guidance went up for the third quarter in a row. But yeah, you hit the nail on the head when you said that the stock is already down 6% over the last month and it's really this SpaceX overhang and Verizon CEO Dan Schulman had some pretty aggressive things to say about it.
Travis Hoium: Yeah, Lou, this is one of those it's always been a dividend play, but now we're at a 6.5% dividend yield. I came away looking at it going, increased guidance in almost every way they possibly could. What more do you want from Verizon at this point?
Lou Whiteman: Yeah, it's the boogeyman way down the road that might eat into this. But look, there's plenty of competition here right now. That's why it's not a growth story. I don't think SpaceX coming in eventually and emphasis on eventually. I don't think that it really destroys the business because again, no one has pricing power. It's just like we already saw what this industry looks like with four players, and it was ugly enough that we went to three. But anyway, that's what it is. I think Schulman is overstating the SpaceX capex story. I do think some of it's self-serving. I'd also note that if SpaceX is coming, what will that mean for Verizon, AT&T, T-Mobile's capex from here? Because I do think they do need to answer some of those questions for what Starlink can add, along with Starlink having to invest as well. But, yeah, I think this business, it's an uninspiring growth stock. It's a pretty attractive value stock, and most of the SpaceX stuff is noise, at least for the next few years.
Travis Hoium: Yeah, the challenge as someone who has owned Verizon stock in the past, that yield looks great, but you don't get a lot of appreciation.
Lou Whiteman: If that's all you get and the market goes up 10%, you still lose.
Travis Hoium: Yeah, it's a challenging business, but it also doesn't seem like it's going anywhere and positive to see that things are getting better.
As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have for more recommendations for or against, so don't buy or sell stocks based solely on what you hear. All personal finance content follows The Motley Fool's editorial standards. It is not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Lou Whiteman, Matt Frankel, and Dan Boyd behind the glass, I'm Travis Hoium. Thanks for listening. We'll see you here tomorrow.
Lou Whiteman has positions in MercadoLibre. Matt Frankel, CFP® has positions in Amazon and MercadoLibre. Travis Hoium has positions in Alphabet, MercadoLibre, and Verizon Communications. The Motley Fool has positions in and recommends Alphabet, Amazon, MercadoLibre, Meta Platforms, Microsoft, and Space Exploration Technologies. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.
