Amazon.com CEO Andy Jassy recently discussed the e-commerce giant’s third-quarter financial results, highlighting a significant boost from its investment in artificial intelligence startup Anthropic, which contributed $9.5 billion to net income. This figure is nearly equivalent to the revenue generated from Amazon’s online retail and cloud services divisions combined. The ambiguity surrounding such accounting adjustments raises concerns during a period of heightened market speculation.
A detailed financial report released by Amazon spans 150 pages and mentions Anthropic nine times. The document attributes the adjustment in the investment’s unrealized gains to “observable changes in prices,” likely referencing the $13 billion Anthropic secured in September from over 20 investors, which resulted in a valuation of $183 billion.
Before the year concludes, Amazon plans to invest an additional $1.4 billion into Anthropic, fulfilling a prior agreement to elevate its total investment to $8 billion. This capital is provided in the form of convertible notes, with some already converted into preferred equity. Amazon values the $6.6 billion previously invested at around $39 billion as of September 30, suggesting a 21% stake in Anthropic. However, the company has not disclosed how it arrived at this valuation, leaving the actual ownership percentage unclear. Additionally, Amazon’s holding is non-voting, and it lacks a seat on Anthropic’s board.
The complexities of this accounting issue are compounded by other business dealings between Amazon and Anthropic. The latter, whose Claude chatbot aims to offer a safer and more reliable alternative in the AI landscape, has selected Amazon Web Services as its primary cloud provider for critical operations. Analysts from Roth Capital estimate that Anthropic could spend over $5 billion on AWS next year, marking a substantial increase from its projected spending for this year and accounting for 3% of AWS’s anticipated top line, a critical division for Amazon.
Such accounting intricacies are unlikely to dissipate soon. Microsoft and Nvidia recently announced plans to invest up to $15 billion in Anthropic in exchange for $30 billion worth of equipment and services. This deal is expected to nearly double Anthropic’s valuation to $350 billion, hinting at another potential adjustment to Amazon’s quarterly income.
Amazon’s public disclosures echo standard language used by other companies to describe minority stakes. The company maintains that its investment in Anthropic is “separate and distinct” from its commercial relationship and asserts its financial reporting adheres to Securities and Exchange Commission guidelines. A spokesperson stated, “Any suggestion that our level of disclosure related to Anthropic is misleading is wrong.”
This situation underscores a familiar challenge: the influence of volatile private-market valuations on public company earnings. Historical precedents abound, with companies like Intel previously holding stakes in various internet firms during the 1999 dot-com boom, and Microsoft facing scrutiny for similar practices during its investment in telecom firms. The repercussions of such opaque accounting practices can often resurface, as evidenced by Amazon’s previous investment in Rivian Automotive, which contributed significantly to its net income before resulting in substantial losses as the company’s stock price corrected.
Anthropic, currently on an upward trajectory, is reportedly considering an initial public offering by 2026. However, with AI technologies still in their early stages, understanding valuation assessments is crucial for investors. Following Amazon’s third-quarter results, the company’s stock initially surged by 14%, only to see gains evaporate in the weeks that followed. More comprehensive disclosures from Amazon could potentially alleviate some of the uncertainty surrounding its financial health.
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