First, revenue is irrelevant.
Second, the investment isn't a loan that they need to repay. They are getting equity.
Third, Anthropic is exclusively using AWS to train its models. Which, yes, means if AWS gives them $4B and it costs them $500M/year to pay for AWS services then after 8 years, the cash is a wash. However this ignores the second point.
Fourth, there is brand association for someone who wanted to run their own single tenant instance of Claude whereby you would say "well they train Claude on AWS, so that must be the best place to run it for our <insert Enterprise org>" similar to OpenAI on Azure.
Fifth, raising money is a signaling exercise to larger markets who want to know "will this company exist in 5 years?"
Sixth, AWS doesn't have its own LLM (relative to Meta, MS, etc.). The market will associate Claude with Amazon now.
Amazon/AWS has their line of Titan LLMs: https://aws.amazon.com/bedrock/titan/
https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...
https://hn.algolia.com/?dateRange=all&page=0&prefix=true&que...
I think its fair to say this is also a hedging strategy then.
Their customers now have an incentive to do AI in AWS. That drives more revenue for AWS.
A quibble: AWS _does_ have an AI story (which i was originally dismissive of): Bedrock as a common interface and platform to access your model of choice, plus niceties for fine tuning/embeddings/customization etc. Unlike say Azure theyre not betting on _a_ implementation. Theyre betting that competition/results between models will trend towards parity with limited fundamental differentiation. Its a bet on enterprises wanting the _functionality_ more generally and being able to ramp up that usage via AWS spend.
WRT titan my view is that its 1) production r&d to stay “in the game” 2) a path towards commoditization and lower structural costs, which companies will need if these capabilities are going to stick/have roi in low cost transactions.
Knowledge is quite the useful asset, and not easily obtained. People obtain knowledge by studying for years and years, and even then, one might obtain information rather than knowledge, or have some incorrect knowledge. The AI companies have engineered a system that (by your argument) distills knowledge from artifacts (books, blogs, etc.) that contain statements, filler, opinions, facts, misleading arguments, incorrect arguments, as well as knowledge and perhaps even wisdom. Apparently this takes hundreds of millions of dollars (at least) to do for one model. But, assuming they actually have distilled out knowledge, that would be valuable.
Although, since the barrier to entry is pretty low, they should not expect sustained high profits. (The barrier is costly, but so is the barrier to entry to new airlines--a few planes cost as much as an AI model--yet new airlines start up regularly and nobody really makes much profit. Hence, I conclude that requiring a large amount of money is not necessarily a barrier to entry.)
(Also, I argue that they have not actually distilled out knowledge, they have merely created a system that is about as good at word association as the average human. This is not knowledge, although it may have its own uses.)
This is essentially money that they would have spent to build out their cloud anyway, except now they also get equity in Anthropic. Whether or not Anthropic survives, AWS gets to keep all of those expensive GPUs and sell them to other customers so their medium/long term opportunity cost is small. Even if the deal includes cheaper rates the hardware still amortizes over 2-3 years, and cloud providers are running plenty of 5+ year old GPUs so there's lots of money to be made in the long tail (as long as ML demand keeps up).
They're not making money yet because there's the $4 billion opportunity cost, but even if their equity in Anthropic drops to zero, they're probably still going to make a profit on the deal. If the equity is worth something, they'll make significantly more money than they could have renting servers. Throw financial engineering on top of that, and they may come out far ahead regardless of what happens to Anthropic: Schedule K capital equipment amortizations are treated differently from investments and AFAICT they can double dip since Anthropic is going to spend most of it on cloud (IANAL). That's likely why this seems to be cash investment instead of in-kind credits.
I think that’s what people mean when they say Amazon is making money off the deal. It’s not an all or nothing VC investment that requires a 2-3x exit to be profitable because the money just goes back to AWS’s balance sheet.
I know they have high costs, but as a startup that’s some phenomenal income and validation that they’re not pure speculation like most startups are
Edit: founded in 2021 and with 1000 employees. That’s just wild growth.
Amazon probably gets Anthropic models they can resell “for free”. The 850M revenue is Anthropic’s, but there is incremental additional revenue to AWS’s hosted model services. AWS was already doing lots of things with Anthropic models, and this may alter the terms more in amazons favor.
Are they actually making money? I don’t know, investments aren’t usually profitable on day one. Is this an opportunity for more AWS revenue in the future? Probably.
AI needs to be propped up because the bug tech cloud providers they depend on need AI to be a thing to justify their valuations. Tech is going through a bit of a slump where all things being hyped a few years ago sort of died down (crypto? VR? Voice assistants? Metaverse?). Nobody gets very hyped about any of those nowadays. I am probably forgetting a couple of hyped things that fizzled out over the years.
Case in point, as much as I despise Apple, they are not all-in the AI bandwagon because it does nothing for them.
Apple is definitely on the AI bandwagon, they just have a different business model and they’re very disciplined. Apple tends not to increase research and investment costs faster than revenue growth. You’ll also notice rumors that they’re lowering their self driving car and VR research goals.
Yes. Which proves my point.
In so glad your point was that it’s not a scam, and there are billions of dollars in real sales occurring at a variety of companies. It’s amazing what publicly traded companies disclose if we only bother to read it. I’m glad we’re all not in the contrarian bubble where we have to hate anything with hype.
1. https://technologymagazine.com/articles/how-ai-surged-google...
2. https://siliconangle.com/2024/10/30/microsofts-ai-bet-pays-o...
3. https://www.ciodive.com/news/AWS-cloud-revenue-growth-AI-dem...
4. https://www.reuters.com/technology/google-parent-alphabet-be...
5. https://fortune.com/2024/10/29/google-q3-earnings-alphabet-s...
Except it sort of is. It needs AI to be hyped and propped up, so that all those silly companies spending in GCP can continue to do so for a wee bit longer.
I think you’re putting the cart before the horse.
Big cloud providers will push anything that would make them money. That’s just what marketing is.
AI was exciting long before big cloud providers even existed. Once it was clear that a product could be made, they started marketing it and selling the compute needed.
What’s the scam?
To be clear, it's not to say that AI itself is a scam, but that the finance departments are kind of misrepresenting the revenue on their balance sheets and that may be security fraud.
All those things would change the world, and nothing would ever be the same, and would disrupt everything. Except they wouldn't and they didn't.
The scam is that those companies don't want to be seen as mature companies, they need to justify valuations of growth companies, forever. So something must always go into the hype pyre.
By all means, I hope the scam goes on for longer, as it indirectly benefits me too. But I don't have it in my heart to be a hypocrite. I will call a pig a pig.
The LLMs and image generation models have obvious utility. They’re not AGI or anything wild like that, but they are legitimately useful, unlike crypto.
VR didn’t fail, it just wasn’t viral. Current VR platforms are still young. The internet commercially failed in 2001, but look at it now.
Crypto the industry, imo, is a big pyramid scheme. The technology has some interesting properties, but the industry is scammy for sure.
Metaverse wasn’t even an industry, it was a buzzword for MMOs during a time when everyone was locked at home. Not really interesting.
I don’t think it’s wise to lump every market boom together. Not everything is a scam.
A lot of folks here seem to look at AI through examples of YC companies apparently. Step back and look instead at the kind of projects technology consultancies are taking up instead - they are real world examples of AI applications, many of which don't even involve LLMs but other aspects such as TTS/STT, image generation, transcription, video editing, etc. Way too many freelancers have begun complaining about how their pipelines have been zilch in the past two years.
Don’t forget about writers and designers losing jobs as well. If you’re not absolute top and don’t use AI, AI will replace you.
not sure if you've been paying attention, but AI is literally _the only thing_ Apple talks about these days. They literally released _an entire generation of devices_ where the only new thing is "Apple Intelligence"
Meta has spent over $50B on Quest and the Metaverse with fewer than 10M MAU to show for it.
If you think those are successes, I'll go out and get several bridges to sell you. Meet me here tomorrow with cash.
Billion dollar valuation for a conpany in a given space is not as impressive as you think it is. Do I need to mention some high profile companies with stellar valuations that are sort of a joke now? We can work together on this ;)