Anthropic's Billions in Microsoft Commitments Add to Its Mounting Compute Bill
Anthropic's planned stock market debut could become a major test of how investors feel about the AI boom.
Optimistic investors see Anthropic as one of the most groundbreaking companies in history. Just five years after it was founded, the company is helping lead the growth of generative AI. Its Claude chatbot and related tools have become important to millions of businesses and everyday users.
Critics, however, see a company making huge spending promises that its chatbot business may not be able to support. Anthropic has committed to more than $500 billion in future spending. It also reported an $80.7 billion loss under generally accepted accounting principles (GAAP) in the first half of the year. Most of that loss came from changes in the estimated value of its convertible debt as the company's valuation soared.
The debate between optimistic and pessimistic investors will become more serious when Anthropic goes public, reportedly at an expected valuation of $2 trillion. On Monday, investors received new information in the company's S-1 prospectus, a document that explains important details about a planned stock offering. One notable detail was Anthropic's relationship with Microsoft (NASDAQ: MSFT).
Anthropic will pay Microsoft at least $45 billion
Microsoft was the last of the three major cloud computing companies to invest in Anthropic, partly because Microsoft has a close relationship with OpenAI. However, Microsoft, the company behind Windows, is one of several cloud providers that Anthropic has agreements with to get computing power.
According to the S-1 filing, Anthropic must spend at least $44.9 billion with Microsoft between November 2026 and May 2033, even if it uses less computing power than expected. The agreement is mostly impossible to cancel.
Anthropic has also promised to spend $114.5 billion with Alphabet over a similar period and $110 billion with Amazon through 2036. It has also agreed to spend about $3.1 billion each month with Space Exploration Technologies (NASDAQ: SPCX) through 2029.
This list does not include all of Anthropic's spending promises. The agreements suggest that the company will spend at least $400 billion on cloud computing infrastructure over the next several years.
What it means for Anthropic
Anthropic spent nearly $9 billion on computing power and infrastructure in the first half of the year. This was by far its largest expense.
The company's future promises to pay for cloud computing are closely linked to its growth. Computing power is what makes its business work. Paying for it is as essential to Anthropic as buying food is to a restaurant.
These amounts are enormous, and they create serious risks if demand for Anthropic's services does not grow as expected. But computing power is hard to get right now, and Anthropic needs to make large commitments to secure enough of it. Without that computing power, the company may struggle to grow.
Investors who are worried about these spending commitments may prefer to invest in major cloud computing companies instead. However, those companies are also spending hundreds of billions of dollars to build data centers that provide businesses like Anthropic with the computing power they need. Stocks such as Microsoft are clearly less risky than shares in AI start-ups like Anthropic.
The debate between optimistic and pessimistic investors will continue regardless of what happens when Anthropic goes public. But the company's stock market debut will give investors a clearer picture of how people feel about AI today. Anthropic's stock could rise a lot or fall sharply, especially over the coming months.
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Jeremy Bowman does not own any of the stocks mentioned. The Motley Fool owns shares in Microsoft and recommends the stock. The Motley Fool has a disclosure policy.
Anthropic's Billions in Microsoft Commitments Add to Its Mounting Compute Bill was originally published by The Motley Fool.