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> The idea of removing model training from your costs is a little wild tbh. Yeah, I didn't believe they'd claim something like that. But yes indeed, from the a

> The idea of removing model training from your costs is a little wild tbh. Yeah, I didn't believe they'd claim something like that. But yes indeed, from the article: > Anthropic's gross margins are above 80% before accounting for revenue shared with distribution partners, including Amazon (AMZN.O), opens new tab, and the cost of training its model, Is this how all AI companies calculate if they're profitable or not, by removing the highest costs? What a circus.

SlightlyLeftPad 20d ago
I believe this is a new accounting method called “phantasmagorical accounting.”
sandeepkd 20d ago
The way I read it, they are convincing the investors that they can fool the larger population convincingly. At the end of the day the investor term is misnomer for big institutional investors, given that these people are managing other people money where they always make out a certain percentage of fees despite the outcome.
_diyar 20d ago
> Anthropic has told shareholders that its adjusted operating income will be positive for a second straight quarter, the Financial Times reported on Sunday, citing multiple people with knowledge of the matter. Note this claim is about „operating profit“, which commonly is the revenue - operating expenses (COGS, rent, payroll). This does not include RnD cost. >Anthropic's gross margins are above 80% before accounting for revenue shared with distribution partners, including Amazon (AMZN.O), and the cost of training its model, the newspaper said. Gross margin is typically (revenue - COGS) / revenue. Thus, both statements above seem generally in line with commonly accepted accounting standards.
- yread 19d ago
  If you are sharing revenue (royalties, licenses based on revenue, costs that scale directly with revenue) doesnt that count as cost of goods sold?
  - infecto 19d ago
    Typically R&D is not part COGS. It’s absolutely part of the bottom line when you will typically recognize the cost over some period of time to try to get a true picture of the business. It’s also easier to strip it out of the picture to think about how much it costs to serve the next token. If you can have great economics to serve the next token (profitable) you can always figure out ways to further reduce your R&D costs. Now they are absolutely intertwined but I don’t think this is ever as big of an issue that people make it out to be. Replace token with any widget, this is how businesses measure themselves.
  - _diyar 17d ago
    Yes, but note that there are two claims in the article: 1) gross margins are 80% w/o revenue sharing. 2) gross margins are positive w/ revenue sharing. So that means Anthropic is making money on every token, and customers are willing to pay 80% margins (some of which might go to e.g. Bedrock to serve the model).
    - yread 17d ago
      running an AI business with 80% gross margin if you leave out the cost of the compute is not difficult. What other COGS even are there?
vgeek 19d ago
Andy Fastow would be envious.
Max-Limelihood 19d ago
This is how all companies calculate gross margins, which is why they're called gross. Gross profit is revenue minus the cost of goods sold. For example, if you sell wheat for $1 and spend $0.20 of labor and raw materials (e.g. fertilizer) to grow it, your gross margin is 80%. This will not include equipment like tractors. AI companies, like all others, include this in their quarterly reports because they are legally, professionally, and customarily required to. The real circus is commenters on HackerNews thinking this number means Anthropic is cooking the books or that it's actually profitable. Gross margin is meaningless for an AI company, since most of their expenses are R&D and infrastructure (the two things excluded from gross margin), but they have to report it anyway.

SlightlyLeftPad 20d ago

I believe this is a new accounting method called “phantasmagorical accounting.”

sandeepkd 20d ago

The way I read it, they are convincing the investors that they can fool the larger population convincingly. At the end of the day the investor term is misnomer for big institutional investors, given that these people are managing other people money where they always make out a certain percentage of fees despite the outcome.

_diyar 20d ago

> Anthropic has told shareholders that its adjusted operating income will be positive for a second straight quarter, the Financial Times reported on Sunday, citing multiple people with knowledge of the matter. Note this claim is about „operating profit“, which commonly is the revenue - operating expenses (COGS, rent, payroll). This does not include RnD cost. >Anthropic's gross margins are above 80% before accounting for revenue shared with distribution partners, including Amazon (AMZN.O), and the cost of training its model, the newspaper said. Gross margin is typically (revenue - COGS) / revenue. Thus, both statements above seem generally in line with commonly accepted accounting standards.

yread 19d ago
If you are sharing revenue (royalties, licenses based on revenue, costs that scale directly with revenue) doesnt that count as cost of goods sold?
- infecto 19d ago
  Typically R&D is not part COGS. It’s absolutely part of the bottom line when you will typically recognize the cost over some period of time to try to get a true picture of the business. It’s also easier to strip it out of the picture to think about how much it costs to serve the next token. If you can have great economics to serve the next token (profitable) you can always figure out ways to further reduce your R&D costs. Now they are absolutely intertwined but I don’t think this is ever as big of an issue that people make it out to be. Replace token with any widget, this is how businesses measure themselves.
- _diyar 17d ago
  Yes, but note that there are two claims in the article: 1) gross margins are 80% w/o revenue sharing. 2) gross margins are positive w/ revenue sharing. So that means Anthropic is making money on every token, and customers are willing to pay 80% margins (some of which might go to e.g. Bedrock to serve the model).
  - yread 17d ago
    running an AI business with 80% gross margin if you leave out the cost of the compute is not difficult. What other COGS even are there?

vgeek 19d ago

Andy Fastow would be envious.

Max-Limelihood 19d ago

This is how all companies calculate gross margins, which is why they're called gross. Gross profit is revenue minus the cost of goods sold. For example, if you sell wheat for $1 and spend $0.20 of labor and raw materials (e.g. fertilizer) to grow it, your gross margin is 80%. This will not include equipment like tractors. AI companies, like all others, include this in their quarterly reports because they are legally, professionally, and customarily required to. The real circus is commenters on HackerNews thinking this number means Anthropic is cooking the books or that it's actually profitable. Gross margin is meaningless for an AI company, since most of their expenses are R&D and infrastructure (the two things excluded from gross margin), but they have to report it anyway.