BREAKINGVIEWS — Anthropic's $2 trln dream faces deflation trap

PPI Spikes Please click here for an enlarged chart of Taiwan Semiconductor Mfg. Co. Ltd. (NYSE: TSM ). Note the following: This article is about the big picture, not an individual stock. The chart of TSM stock is being used to illustrate the point. TSM manufactures cutting edge AI chips for the likes of NVIDIA Corp (NVDA) and Advanced Micro Devices, Inc. (AMD). The chart shows TSM stock is falling after reporting record earnings. The chart shows TSM stock has fallen well below the low band of zone 1 (resistance). The chart shows TSM stock is well above the high band of zone 2 (support). RSI on the chart shows TSM is now oversold. The fact that TSM is falling after reporting record earnings is another data point showing that in this phase of AI the character of the stock market is changing. Here are the details of TSM earnings: For Q3, earnings came at $4.60 vs. $4.46 consensus. For Q3, revenues came at $46.72B vs. $45.67B consensus. This is a 41.1% year-over-year rise. For Q4, TSM is guiding revenue of $52.3B — $54.3B vs. $50.22B consensus. Anthropic is one of a handful of top companies that are driving AI. Anthropic made financial disclosures yesterday at its investor day ahead of its planned IPO. Here are the key points: Q3 revenue was $16.8B, up from $11.6B in the Q2 and $4.7B in Q1. Q3 revenue translates to an annualized $67.2B based on average quarterly revenue. Anthropic reported positive free cash flow, an adjusted gross margin of 85%, and an adjusted operating margin exceeding 11%. Anthropic is targeting an IPO valuation exceeding $2T. Here is our analysis of Anthropic’s financial disclosures: Revenue growth slowed sharply to 45% in the Q3 from approximately 147% in the Q2. The important point is not that Anthropic’s revenue growth is weak. Growing revenue 45% in a quarter is extraordinary, especially at this scale. The issue is that growth is slowing at a time when investor expectations are extremely high. Earlier expectations were for Anthropic to exceed a $100B annualized revenue run rate by year end, with some investors projecting $120B. The latest disclosures have raised questions about those expectations, though some analysts still project a year end run rate of over $100B. To reach a $100B annualized run rate by December, Anthropic would need monthly revenue of approximately $8.3B, compared with average monthly revenue of $5.6B in Q3. The bigger issue for the stock market is the disconnect between AI growth and the expectations already built into stock prices. AI demand remains strong, but slowing growth at major AI model developers raises questions about the returns on the massive investments being made by hyperscalers and AI infrastructure companies. The stock of neocloud company CoreWeave Inc (CRWV) has seen panic selling. The reason is CoreWeave is heavily indebted. The yield on CoreWeave’s 9.652% debt maturing in 2032 rose to 15% in panic selling. CRWV dragged down the stocks of Oracle Corp (ORCL), Nebius Group NV (NBIS), and