Monologue: Anthropic Is Not Profitable Unless You Remove Its Costs

In this week's Better Offline monologue, Ed Zitron runs you through Anthropic’s claims it will be non-GAAP EBITDA profitable for Q2 2026 by having SpaceX discount its compute costs, and how said revenues don’t match up with its CFO’s sworn affidavit or previous reporting on its finances. Companion newsletter: https://www.wheresyoured.at/anthropics-profitability-swindle/ https://www.flyingpenguin.com/wheres-ed-anthropic-told-court-5-billion-but-public-19-billion/ Please subscribe to my premium newsletter - save $10 off a year of my premium newsletter: https://edzitronswheresyouredatghostio.outpost.pub/public/promo-subscription/gzqwkv54e1 YOU CAN NOW BUY BETTER OFFLINE MERCH! Go to https://cottonbureau.com/people/better-offline and use code FREE99 for free shipping on orders of $99 or more. --- LINKS: https://www.tinyurl.com/betterofflinelinks Newsletter: https://www.wheresyoured.at/ Reddit: https://www.reddit.com/r/BetterOffline/ Discord: chat.wheresyoured.at https://discord.com/invite/QUUQUP9szv Ed's Socials: https://twitter.com/edzitron https://www.instagram.com/edzitron https://bsky.app/profile/edzitron.com https://www.threads.net/@edzitron Email Me: [email protected] mailto:[email protected] See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

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• 2:00Ed Zitron?

  Monologue. I'm your host, Ed Zitron.

• 2:10Ed Zitron?

  On Wednesday, The Wall Street Journal ran a story about how Anthropic is about to have its first profitable quarter, specifically in operating profit, or a bit de profitability. So earnings before interest, tax and bad stuff, really, saying that Anthropic's revenue was set to more than double to $10.9 billion in the second quarter of 2026, which is when said profit would happen. Per the Journal, Anthropic generated $4.8 billion in sales in the first quarter and in Q2, that's that $559 million operating profits home. Interesting. There's a lot of certainty, considering we're barely through the first half of the second quarter and quite a specific number, given the fact that June hasn't started. And all

• 2:54Ed Zitron?

  of these numbers are mysteriously leaking exactly while Anthropic is raising its funding round. And there's another important note from the story, too. The Journal adds at the very bottom of the article that it, and I quote, "is unclear what accounting methods Anthropic has used to book revenue and costs, as the company isn't yet required to follow the financial reporting requirements of a public company." That's right, Anthropic is possibly going to be a bit de profitable for a single quarter on a non-GAAP, so generally accepted accounting principles basis. Anyway, I wonder how they did it? Because based on the unhelpfully labeled diagram from the Journal's article, it appears, as I said last year, that Anthropic's costs scale linearly with its revenues, except they magically

• 3:37Ed Zitron?

  didn't in the second quarter. How? And I wonder if Anthropic will somehow stay profitable? Let's see if the Journal has a quote. Oh, there we go. Okay. "The company might not remain profitable for the full year as it plans, spending increases due to its vast computing needs."

• 3:55Ed Zitron?

  Interesting, that's very interesting. So Anthropic may be profitable, very specifically in the second quarter of 2026, but might not be afterwards. It's almost as if it found a way to specifically cut its costs in May and June somehow, because it did. Remember that deal Anthropic signed with SpaceX to take over Colossus One? Well, it's also extending to Colossus Two. And they're going to be paying SpaceX 1.25 billion dollars a month, starting in May and June. And in those two months, they're going to have reduced fees. You know, the quarter in which Anthropic is magically profitable, the one with the lower costs.

• 4:37Ed Zitron?

  Per SpaceX's S1, pursuant to its agreement, Anthropic will pay SpaceX 1.25 billion dollars a month through May 2029, with capacity ramping up in May and June at a reduced fee. As 15 billion dollars a year in compute costs, but reduced to an indeterminately discounted level for the precise months that Anthropic is using to tell its investors and the media that it has an operating profit. 559 million dollars in operating profit in a three-month period is absolutely possible when you're not paying for all your costs. While I wouldn't say this is cooking the books, I would say it's definitely a Shiatsu-grade massaging of the numbers. Anthropic has deliberately leaked a quarterly "profit," and I'm doing air quotes, where

• 5:19Ed Zitron?

  it knows it can suppress its costs, specifically made sure that the journalist gave it an out of "costs might increase," and released it on the day of Nvidia's earnings as a means of keeping the AI bubble inflated. Nothing has changed. If Anthropic was paying the full rate for its compute in those two months, its economics would shift right back to where it's always been per my reporting from last year on its AWS costs, a business that has its costs linearly increased with its revenues. I also severely doubt that Anthropic managed to make the cost of running their services profitable in the space of six months. Per the information in January, Anthropic missed on its gross margin projections for 2025, saying that its inference costs were 23% higher than the company had anticipated.

• 6:02Ed Zitron?

  How did Anthropic, who faced a massive influx of new business to the point that it was forced to buy more compute from Elon fucking Musk, suddenly have its revenue outpace its costs? I've got a few guesses, other than the obvious way in which they reduce their costs. Number one, for large enterprises, they're taking prepayment of tokens, so $50 million intended to be spread over 12 months, that it's taking as upfront revenue. This would both inflate revenue numbers and depress costs, because Anthropic wouldn't have actually provided the compute necessary to earn that revenue yet. Perfectly legal, because this isn't non-GAAP, this is non-GAAP accounting. Like, you could just, you could say whatever. In a real company, in a public company, that would be considered deferred revenue. Anthropic is already offering discounted tokens for Claude users, too, through the

• 6:47Ed Zitron?

  "Buy Extra Credits" page on their accounts, with discounts ranging from 10% to 30%. It, again, may be booking this upfront, rather than saying, "Okay, let's book this as the person uses the compute." They could also be front-loading annual commitments of basically any kind: subscriptions to Claude, enterprise or team agreements, and so on. And they could have deliberately ratcheted down training to ease the burden on its infrastructure to provide inference. But, if I'm honest, the revenue side is where the real problems lie. So Anthropic has said it brought in $4.8 billion in revenue in the first quarter of 2026, and projects to hit $10.9 billion in Q2 2026. This is pretty tough to reconcile with previous reporting.

• 7:31Ed Zitron?

  On February 12, 2026, Anthropic claimed it had reached $14 billion in annual recurring revenue. As a reminder, ARR is an accounting tool largely used by startups, but some public companies, too, where a snapshot of a single month's income is taken and multiplied by 12. This gives you an implied monthly revenue of like $1.16, $1.17 billion. On March 3, 2026, Wario Amade would claim Anthropic had reached $19 billion in ARR, so about $1.58 billion per month. Three days later, on March 6, Krishna Rao, chief financial officer of Anthropic, would declare under oath in a court filing that Anthropic had brought in revenues exceeding $5 billion to date. So just to be clear, lifetime revenues.

• 8:16Ed Zitron?

  Also keep in mind that the information had previously reported that Anthropic had $4.5 billion in revenue in 2025, which already puts us at the limits of credulity. While boosters may claim that exceeding could mean literally any number they want above $5 billion, I found it doubtful that the CFO of Anthropic would, under oath, leave the court to believe its business was 30 to 40% smaller than it was, especially when trying to convince it that the damage of being labeled a supply chain risk would ruin its business. They would want it to seem bigger than it is, not smaller. And at this point, it's impossible to reconcile that 2025 reporting with that $5 billion number. No one wants to talk to me about it. None of the journalists involved, no analysts,

• 8:58Ed Zitron?

  no one wants to talk about this at all. It makes them uncomfortable and angry, I assume, probably because it's impossible to reconcile.

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• 11:20Ed Zitron?

  If we assume that the ARR claims made by Anthropic are correct, we can presume that it made revenues of roughly $2.4 billion, $2.5 billion in March, given that it claimed it had $30 billion of ARR on April 6. If you're getting confused with the numbers, by the way, there's a newsletter attached to this. Nevertheless, when you add up all those ARR's, you get to about $5.25 billion, which is in excess of what The Wall Street Journal had said. And in some world, maybe there's a way of cherry picking using particular periods to the point that the ARR's make sense and would actually be in the region of $4.8 billion. Fine. But they don't make a lick of sense when you bring up what Krishna Rao, their CFO, said. If we believe Anthropic's leaks, putting aside all the ARR figures for a second, this means that Anthropic,

• 12:04Ed Zitron?

  A, made over 90% of its lifetime revenues in the first quarter of 2026, and B, made virtually no revenue its previous years, and C, leaked completely imaginary run rates to the media for years. While I acknowledge that Anthropic appears to have grown significantly, that level of stratospheric growth does stretch the limits of their credibility. Moreover, the fact that previous ARR figures are inconsistent with the leaked charts from Anthropic further raises questions about the credibility of, well, any numbers from the company. The only real defence that anybody has here is that Krishna Rao, under oath, lowballed the US government and adjudged to such a dramatic extent that he hid an excess of $4 billion in revenue.

• 12:49Ed Zitron?

  And as I've discussed before, and Flying Penguin helpfully collated, which I'll link in the notes, adding up Anthropic's previously reported ARR from January 2025 to March 3, 2026, already gets us to around $6.66 billion. Now, I know there are going to be some boosters who hear about this and they're going to be like, "Well, this is proof. There's a business model emerging from AI." And I'm, I'm sorry, that's not what's happening. Dario Amadea and Elon Musk worked out a sweetheart deal, framed as a ramp-up that allowed Anthropic to artificially depress its costs. I also question how much of a ramp-up there really was, or what Anthropic's actual compute constraints were, because Anthropic immediately loosened rate limits for Claude subscribers on announcing the deal, meaning that it immediately started having higher inference costs,

• 13:33Ed Zitron?

  which somehow led to it making a higher profit. Or did Musk, as literally described in its S1, have SpaceX charge Anthropic less for two specific months to make the numbers look better? In July, Anthropic will start paying SpaceX $1.25 billion a month, or about $15 billion a year, on top of all its other compute deals with Google, Amazon and Microsoft. If we assume that its spend is comparable on AWS and Google Cloud, and it's most assuredly more, that means Anthropic is spending around $3.75 billion a month in compute costs, or $11.25 billion a quarter, or $45 billion a year. I'm 100% sure it's more than that.

• 14:16Ed Zitron?

  There's also a very compelling argument that Anthropic's costs will increase and will eat up that profitability. To once again repeat the quote from the journal, "The company might not remain profitable for the full year as it plans spending increases due to its vast computing needs." I also have to wonder, this company is profitable. You're just humoring here for a second. If you're so profitable, why aren't you IPO-ing? Why not take this to the public markets? Unless, of course, you're only non-GAAP a bit to profitable based on a two-month-long discount specifically covering the period in which you're profitable. I will give Dario Amade credit. Nobody does it better. Nobody does financial engineering and press-led information war better than Anthropic.

• 14:58Ed Zitron?

  The utter willingness of the press to eat up incongruent numbers and the eagerness of many to jump up and find obtuse ways to explain away the obvious problems is only made possible when a company has perfected the art of manipulation and ingratiation of those who want to feel like they're first. If you take this as an incontrovertible proof that Anthropic is profitable, you are deliberately ignoring the blatantly obvious ways these numbers are being massaged. We've got its CFO saying numbers that don't match up with any of their leaks or their own marketing materials and the aggressive and deluded way in which people ignore them is equal parts frustrating and depressing. So I want to speak to any AI boosters in the audience, and I want to speak with a little more empathy than usual. If you want Anthropic to win, you should be just as

• 15:43Ed Zitron?

  skeptical of these numbers as I am. You should want to smash my face in the tarmac with the most crystal-clear, impossible-to-argue-with-numbers, bereft of asterisks, or discounts from suppliers, or obfuscated accounting metrics. You should want better from your heroes. If you truly think this company is amazing, unstoppable, and leading the tech industry to a glorious era of innovation, there shouldn't be this many questions and the metrics shouldn't be this murky. Every other time when a company has played this level of silly, weird bullshit, it's led to disaster. For example, WeWork claimed to be profitable since the second month of its operations and repeated those claims of profitability throughout its existence until it turned out it was only profitable if you removed things like some of the costs of doing business.

• 16:28Ed Zitron?

  And I get why you're so defensive and I get why you want this to work. A lot of you are very excited about generative AI and being excited about it has given you a tremendous community of equally excited people. I get that you like these tools and I need you to know that these companies are laughing at you. Anthropic timed this leak to focus on a specific quarter where it artificially suppressed costs and gave you the flimsiest proof imaginable, specifically crafted for you to share it as a triumph and spread the idea that AI labs are actually profitable when their core economics haven't changed. Costs increased linearly with revenue and will continue to do so in perpetuity. I genuinely can't wait for OpenAI and Anthropic to file their goddamn S1s.

• 17:15Speaker 02

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• 18:31Speaker 04

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