Before I get into my analysis, let me just say that I use Claude every day and really like Anthropic's products. But I think they are making a pretty large error with their IPO, trying to slide some things by without you noticing.
When you only look at the top 25 pages of the S-1, everything pretty much looks pretty good: Revenues up from $1.16B in H1 2025 to $16.3B in H1 2026. Q2 2026 GAAP operating profit was $1.03B. They have $131.7B in cash and near-cash equivalents. But if you look at the accounting mechanics, the accounting treatments, the working capital loops, and particularly footnote 9, you start to see that the structure of Anthropic is poised to be that of a high margin software company, while the balance sheet looks more like a highly leveraged utility. This is 100% GAAP-compliant, audited accounting and not considered illegal.
Here are some red flags I found:
Training costs are number uno, there is no gross margin line item anywhere in the S-1. If you open virtually any SaaS S-1 you will see the revenue line, and directly below that COGs or Gross Profit line, then operating expenses. Anthropic has chosen to remove the gross margin line. They have taken their cost of goods sold (customer inference & computing power) and model training cost and put them into a single line aggregate expense called "Compute and infrastructure," which came to $8.95B in H1 2026.
They only have two reasons for doing so:
One either the company has absolutely dreadful marginal profitability per unit provided (not too profitable at the service level) or the multi-billion dollar training campaigns that go on nearly all the time (AI Labs are continuously training the next model; model development doesn't stop) are essential recurring capex rather than optional discretionary R&D spend.
Convertible Notes Subsidy:
So take a look at the bottom of the income statement. There's a large amount of losses in Q2 2026 for changes in the fair value of the convertible notes amounting to $72.4B. Most of the wall street crowd will just brush it off as a non-cash accounting item, as the valuation of notes had gone up by a considerable amount in their last private funding rounds. But if you take a deeper look at those tens of billions of dollars of losses in the form of convertible notes issued by the company between 2023 and 2025 were entirely and soley to cover the enormous training compute costs, which were paid for by the company in the form of cheap equity shares to Google and Amazon (the cloud providers). So I hypothesize that Anthropic is subsidizing their training expense, as part of notes to the Cloud providers Google and Amazon, to shift the Billions of dolllars from top line COGs, into liabilities and R&D. This is 100% GAAP-compliant, audited accounting; it is not illegal, or considered fraud. I'll cover the next part in a second.
Off-Balance Sheet Tsunami:
The $587 billion take-or-pay obligation trap (Footnote 9 of S-1): Total off balance sheet liabilites were up to nearly 6x what they were a year earlier, reaching $587B by the end of Q2 2026
Lets break the numbers down a bit to see where we are:
- $265.6B in irrevocable minimum fixed purchase agreements (which includes at least $114.5B to Google Cloud through 2033 and $110B to AWS through 2036); around 80% of that is non-discretionary.
- Uncommeced leases, under ASC 842 the leases can be deferred indefinitely until the date of official occupancy, so this category of leases alone make up about $321.4B of off balance sheet liabilites, even though they represent a real liability to the company.
- Broadcom 9% debt loop, of that, it contains $161.2B of Broadcom TPU leases which are 5 years out (around 2030,2031) that were funded with $42B 9% loan facility
So how does this like affect the S-1:
Whenever the company uses those loans to make lease payments they are treated as financing activities rather than operating expenses which allows the company to present the cash-flow are relatively clean, presenting the image that Anthropic is profitable or has decent margins. Typically, if you are leasing out infrastructure, it would be a variable cost as most companies do that scales as usage scales, but in Anthropics case they have effectively turned a variable cost into a fixed cost floor that is irrevocable. They have locked themselves into an exponential growth plan without room for any hitches. They are now forced to produce a spike in revenue before 2027-2030 to service the uncommenced leases, take-or-pay commitments, and regular operations.
So now we see the company is using liabilities as a way to shift expenses but they are doing something weird with revenue too:
Notice the weirdness of the balance sheet: revenues go up steadily, so do their current liabilities, seemingly in lockstep. After I traced the path of the funds, you realize that they are creating a self-looping cycle involving Google/AWS: 48%. of the revenue came through the AWS marketplaces and Google Vertex AI Platform (up from 11% in 2023). Gross vs Net revenue inflation: when a customer pays Anthropic for service via the AWS or Google cloud marketplaces, they are recognizing the full amount as gross revenue (which inflates their sales multiples). The commission paid to the marketplace owner (around 20-27%) is then essentially shifted into the sales and marketing expense line at 19% of all revenue.
Working capital vice effect: 58% of the company's accounts receivable are still in the hands of AWS/Google. The other side of it is that current liabilities and accruals have risen so dramatically that they owe a massive amount to their marketplace owners. They are borrowing picks and shovels to mine for gold at Amazon/Google, sell the gold back to them via the marketplaces, have Amazone/Google hold on to 58% of the receivables from the customers, and book the 255 net margin from the marketplaces as gross revenue.
My Conclusion:
The point I am trying to convey is the fact that Private investors and hyperscalers have reached maximum asset concentrations. They have entered massive commitments with cloud providers in order to fuel hypergrowth necessary for inflating valuations. And now those same agreements are chaining them to a death-trap treadmill without an exit strategy. Even with unstable public markets and enterprise cutbacks looming, this offering seems more like a desperate liquidity release than a fundraising exercise. And if revenue growth breaks the form needed to service Anthropic's or any large AI startup's liabilities, the broader market is in trouble.
Edit: Tightened up my phrasing around the Convertible Notes section; I am in no way saying Anthropic is doing something illegal or breaking GAAP compliance; I am just highlighting the choices around their accounting practices. And to clarify the mechanics, I understand that compute invoices still hit the compute and infrastructure OpEx and the $72.4B charge is an unrealized equity fair-value mark on notes; my point is that the economic round trip of issuing cheap convertible debt to cloud providers to fund the cash needed for the massive compute bills is a massive hidden cost of capital