Altimeter Investor Jamin Ball Breaks Down Anthropic’s S-1: $109 Billion in 'Debt' and $81 Billion in 'Losses' Are Non-Cash Adjustments from Convertible Note Mark-to-Market Revaluation
Jamin Ball points out that the $109 billion in 'convertible notes payable' on Anthropic's balance sheet is not actual borrowing, but rather the result of marking early-issued convertible notes as liabilities at their current valuation; the $81 billion net loss in the first half of the year is similarly driven by this mark-to-market revaluation, not operational losses. After excluding these non-cash adjustments, Anthropic actually achieved an 8% GAAP operating margin in the second quarter of 2026.
After Anthropic filed its S-1 registration statement with the U.S. Securities and Exchange Commission (SEC), two figures quickly became the focus of social media: $109 billion in 'convertible notes payable' on the balance sheet, and a net loss of $81 billion for the first half of the year. Altimeter investor Jamin Ball systematically dismantled the misunderstandings surrounding these two numbers in his personal newsletter. He first needed to disclose a conflict of interest: Altimeter itself is an investor in Anthropic, but these views represent only his personal stance.
Ball believes there are only three questions worth discussing regarding Anthropic’s S-1: Can Anthropic stay at the technological frontier? Can anyone build a durable business around frontier models? How much does it cost to stay at the frontier, and can the answer to the second question support the third? However, much of the online discussion remains stuck on superficial misinterpretations, so he chose to address the most obvious errors one by one.
The first misconception: The fact that Anthropic did not disclose third-quarter data in its S-1 suggests they are hiding something. Ball argues this is completely untenable. Anthropic’s third quarter ended less than 30 days ago, and financial data in an S-1 must undergo complete third-party auditing; early-stage companies typically take longer to complete these audits. He cited two recent examples: Cerebras went public in May (with its first quarter ending in March), yet the final S-1 still featured data from the previous December quarter; Figma’s final S-1 was dated July 31, 2025, but data from its second quarter, which ended June 30, did not appear. Data shared during the investor day for Q3 was likely unaudited preliminary figures.
The second misconception, and arguably the most important one according to Ball: Anthropic has over $100 billion in debt on its balance sheet. He explained in detail the true meaning of this 'debt.' Anthropic’s balance sheet shows $134 billion in cash (including $112 billion in cash and cash equivalents, $19 billion in short-term investments, and $3 billion in restricted funds), along with $109 billion in 'convertible notes payable.' The company also disclosed cumulative financing of approximately $141 billion. Subtracting the $134 billion in cash from the $141 billion in financing means the company has burned through only about $7 billion since its inception. But many people countered: 'No, they borrowed an additional $108 billion in debt on top of the $141 billion!'
Ball pointed out that this is entirely incorrect. According to the balance sheet, Anthropic has not drawn down any loans. So what is that $109 billion? To understand it, one must return to the early financing structure. Like most startups, Anthropic raised capital through various methods including preferred stock, convertible notes, and SAFEs (Simple Agreements for Future Equity). For strategic investors like Amazon and Google, a significant portion of funding was injected via convertible notes rather than direct equity. Ball speculated on the reasons: public companies may wish to keep their ownership stakes in other entities below certain thresholds to avoid triggering 'control' reviews by the U.S. Federal Trade Commission (FTC); the company might have been unwilling to cede governance rights to strategic investors; or the strategic investors themselves might prefer convertible notes because they rank senior to preferred stock in the capital structure, allowing them to recover funds first if the company encounters problems.
These convertible notes were priced based on the valuation at the time of issuance, granting investors a 'promise to convert into shares at an agreed price in the future' rather than immediate shares. As the company’s valuation surged significantly, accounting standards required this liability to be measured at the current share price rather than the original conversion price—i.e., 'number of promised shares × current share price.' Because Anthropic’s current valuation is far higher than when these notes were issued in 2023 and 2024, the liability amount was pushed up to $109 billion. Ball emphasized that this is not 'issuing debt at a massive discount,' but rather the accounting manifestation of normal pricing from years ago under mark-to-market revaluation. If equity had been issued directly instead of convertible notes back then, this 'liability' would never have appeared.
The third misconception: A net loss of $81 billion in the first half of the year indicates this is a terrible business. Ball explained that the cause of this $81 billion loss is exactly the same as the 'debt' mentioned above. When liabilities increase on the balance sheet, to maintain the accounting equation (Assets = Equity + Liabilities), equity must decrease correspondingly, and the only way to reduce equity is by recognizing a loss through the income statement. Of the $81 billion, $72 billion comes from the mark-to-market revaluation of convertible notes held by Amazon—Amazon holds $6.2 billion in notes that can convert into approximately 1.8 billion shares at $2 to $5 per share. These shares were 'sold cheaply' at the valuation of 2023–2024, and now that the company is worth more, the difference is recognized as a loss all at once. Another $9 billion comes from note purchase agreements Anthropic made with Google and Amazon in March and April 2026, promising to sell $15 billion in Series G-2 preferred shares at $259 per share (the January Series G price). Weeks later, the Series H pricing was set at $589 per share, and GAAP booked this discount difference as an expense.
Ball pointed out that after excluding these non-cash adjustments, Anthropic actually achieved a positive 8% GAAP operating margin in the second quarter of 2026. He also addressed a fourth common misconception: 'They are only profitable because huge equity grants show up as non-cash expenses.' Anthropic’s free cash flow margin was 21% in the first half of the year, and free cash flow itself already excludes stock-based compensation (SBC) expenses. Even adding SBC back in (i.e., subtracting it from free cash flow), Anthropic still maintained a positive 8% free cash flow margin. Therefore, the claim that 'if they treated equity compensation as cash compensation they wouldn’t be profitable' is false.
In summary, Ball concluded that Anthropic’s actual financial picture is: an 85% gross margin in the first half of the year, a 21% free cash flow margin, an 8% free cash flow margin excluding stock-based compensation, an 8% GAAP operating margin in the second quarter, and holding $134 billion in cash after cumulative financing of $141 billion.
Looking ahead, Ball provided expectations with clear personal judgment. He considers Anthropic’s current profitability to be 'accidental': the company has not expanded its compute capacity to its desired level (he noted this is speculation), but it has proven it can efficiently monetize its existing compute resources. He expects that as compute expands to meet future demand, profitability will decline and turn negative. He drew an analogy to the SaaS industry: SaaS companies have long said, 'Wait until we mature and growth slows, then profitability will arrive,' whereas Anthropic’s situation is the opposite—'We are already profitable, and now we are returning to growth mode, burning money to expand our compute fleet.'
It must be reiterated that Altimeter is an investor in Anthropic, and Ball explicitly stated in the article that the above views represent only his personal opinion, not Altimeter’s position.