Episode summary
Anthropic Stock: Check This Number Before You Buy the IPO
Summary
Anthropic’s upcoming IPO is presented less as a story about the stock price and more as a test of the business model behind Claude. The host argues that the first thing investors should study is gross margin, because it reveals whether a company has real pricing power. He contrasts software businesses that can reach 80% gross margins with Anthropic’s roughly 50% gross margin, which he says reflects heavy computing costs and intense competition.
The biggest risk, in the host’s view, is that Anthropic and OpenAI are already fighting a price war. He cites a Rippling example in which Anthropic’s share of coding work fell from 57% in May to 18% within six months, while OpenAI rose from 16% to 52%. The host says that kind of rapid switching suggests weak switching costs and aggressive discounting.
He says the IPO outcome will matter less than the long-term economics: if AI models keep undercutting each other, margins could stay compressed and investors could struggle to justify premium valuations. He also notes Google and other deep-pocketed rivals could pressure prices further.
Key takeaways
- The host says investors should start with gross margins, because they show whether a business has pricing power.
- Anthropic’s about 50% gross margin is the central concern, versus roughly 80% for software giants like Microsoft and Google.
- The host says Rippling’s coding workload flipped from Anthropic to OpenAI in six months, implying low switching costs.
- OpenAI appears to be winning business through discounts, which could force both companies into lower margins.
- The host thinks Anthropic’s IPO performance will ultimately depend on whether it can defend pricing power over time.
Notable quotes
“First thing you want to do is look at the income statement, open it up, and say, "What's your gross margin? How much does it cost you to make what you're selling”
“in May, Anthropic powered 57% of Rippling's coding activities, right? OpenAI models handled 16% of that work”
“Since then, the situation has reversed. 52% of their software coding work now is handled by Open AI, where Anthropic is handling 18%”
“The IPO, maybe it does good the first day, maybe it does bad, who knows, right? I have no idea”
How the episode opens
Good morning. This is Dylan Jovine with Behind the Markets. Happy Tuesday.
Today is Tuesday, October 27th. Today I'd like to talk about Anthropic. You know, Anthropic is going public.
This is the maker of Claude and the biggest competitor to ChatGPT in the AI space. And you know, it presents a great opportunity for us to unpack kind of some lessons about how businesses operate in competitive strategy that might be very, very helpful to you in your investment operations. And that is my goal in life is to share as much of these painful experiences and wisdoms, any wisdom that I may have gotten over the years, with you all to help prevent you from making any of the mistakes that I've made in my life cuz Lord knows I made them all.
And look, this is a big important company. Anthropic's a big important company. You know, ChatGPT, Anthropic, Grok, Gemini, these companies are, you know, I mean, I heard somebody say the people that are going to run the world are going to be no more than those that could fit in an elevator.
It's kind of crazy, really, when you think about where we are here. It's like a big bang of intelligence, which is, you know, has its own stuff. But this is a big and an important thing both for us as humans, as society, and most importantly for this channel as investors.
And when SpaceX went public, you know, I did the usual thing. I talked about the stock. I talked about shares, ideal time to buy them relative to history.
But for Anthropic, I kind of want to talk about the business. And I also want to show you One thing I'm going to do differently with this one is I'm going to show you related party transactions because this is going to be an opportunity to show you firsthand how these insider deals work among this little, you know, cabal of Silicon Valley elite, for lack of a better word.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- anthropic ipo
- ai pricing power
- openai competition
- gross margin analysis
- computing cost economics
Companies and tickers mentioned
- MSFT
- GOOGL
- GOOG
- META
- Anthropic
- OpenAI
- Microsoft
- Rippling
- Meta
- SpaceX
- GEICO
- State Farm
Watch the episode
Watch “Anthropic Stock: Check This Number Before You Buy the IPO” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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