Anthropic’s Form S-1, filed with the SEC on 26 October 2026, reports a net loss of $80.7 billion for the six months ended 30 June 2026. On the company’s own non-GAAP measure, Adjusted Net Income, the same half shows a profit of $2.7 billion.
Two valuation lines more than account for the net loss: a $72.4 billion change in the fair value of convertible notes, derivative liabilities and SAFEs, and $8.7 billion from marking other financial instruments to market. Stock-based compensation of $2.2 billion and $126 million of non-cash charitable contributions make up the rest of the gap to the adjusted figure. The notes still outstanding at 30 June, which the S-1 says are all held by Amazon, had $6.2 billion of principal and were carried at $108.6 billion.
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A one-minute explainer of the idea behind this story: convertible preferred stock. It teaches the concept, not this story’s figures.
The key insight: As we read it, the S-1 shows two Anthropics in one half-year: an operating business that lost $693 million, generated $3.9 billion of operating cash and reports a $2.7 billion Adjusted Net Income, and a capital structure whose valuation marks, $72.4 billion and $8.8 billion, more than account for the $80.7 billion net loss.
Change in fair value of convertible notes, derivative liabilities and SAFEs
(10,942)
(72,388)
Other income (expense), net
—
(8,757)
Provision for income taxes
7
21
Net loss
(12,969)
(80,748)
Source: Anthropic, PBC Form S-1, Summary Consolidated Financial and Other Data, filed 26 October 2026. Six months ended 30 June, unaudited.
The operating business lost $693 million in the half. Interest income added $1.1 billion. The two valuation lines below the operating line, $72.4 billion and $8.8 billion, are what turn that into an $80.7 billion net loss.
The S-1 says the $72.4 billion was “primarily driven by an increase in the fair value of our outstanding convertible promissory notes resulting from an increase in our enterprise valuation from 2025 to 2026.”
Anthropic, PBC Form S-1 filed 26 October 2026, Non-GAAP Financial Measures: the company’s reconciliation of Adjusted Net Income ($2,671 million) to GAAP net loss ($80,748 million) for the six months ended 30 June 2026, unaudited. Adjusted Net Income is a non-GAAP measure defined by the company.
The Amazon Notes
The filing says the notes outstanding at 30 June 2026 “consist entirely of non-interest-bearing rollover notes issued to Amazon under the Amazon 2023 NPA and the Amazon 2024 NPA.” Their principal was $2,186 million under the 2023 agreement and $4,017 million under the 2024 agreement, a total of $6,203 million.
The balance sheet carries convertible notes payable at $108,566 million at 30 June 2026, up from $41,677 million at 31 December 2025. The notes are recorded at fair value, with changes in fair value recorded in earnings, because the company elected the fair value option.
The S-1 lists conversion prices of $2.0928 a share for the 2023 notes and $5.0478 for the 2024 notes, and 1,840,444,962 Class N shares issuable on conversion. In connection with the IPO, the notes convert at the lower of those prices and the IPO price, subject to a cap under which Amazon may not hold more than 12% of the company’s capitalization unless it waives the limit.
The filing explains the mechanism: “Because these instruments are marked to market, increases in our enterprise valuation drive increases in this expense.” It adds: “We will continue to recognize changes in the fair value of our convertible notes until they are converted into equity, repaid, or otherwise settled.”
The Second Mark: Google’s and Amazon’s 2026 Agreements
The $8.8 billion in other expense has a different source. The S-1 says it was “primarily driven by the initial fair value recognition and change in fair value of the assets and liabilities recognized under the note purchase agreements described in Note 4.”
Note 4 describes two of them: a March 2026 agreement with Google and an April 2026 agreement with Amazon, each including a commitment to sell Series G-2 redeemable convertible preferred stock at $259.1364 a share. “These agreements are marked-to-market each period,” the note says.
Other income (expense), net, H1 2026
US$ millions
Recognition and change in fair value of note purchase agreements
(9,405)
Change in fair value of holdback liability
(39)
Change in fair value of warrant rights
724
Other
(37)
Total
(8,757)
Source: Anthropic, PBC Form S-1, notes to the consolidated financial statements, Other Income (Expense), Net. Six months ended 30 June 2026, unaudited.
The Company’s Own Adjusted Measure
The S-1 defines Adjusted Net Income (Loss) as net loss excluding stock-based compensation, non-cash charitable contributions, the Bartz settlement, the change in fair value of convertible notes, derivative liabilities and SAFEs, and the change in fair value of certain mark-to-market financial instruments.
Reconciliation (US$ millions)
FY 2025
H1 2025
H1 2026
Net loss
(41,965)
(12,969)
(80,748)
Stock-based compensation expense
1,165
286
2,185
Non-cash charitable contributions
541
—
126
Bartz settlement
1,500
—
—
Change in fair value of convertible notes, derivative liabilities and SAFEs
34,308
10,942
72,388
Change in fair value of certain mark-to-market financial instruments
3
—
8,720
Adjusted Net Income (Loss)
(4,448)
(1,741)
2,671
Source: Anthropic, PBC Form S-1, Non-GAAP Financial Measures. Adjusted Net Income (Loss) is a non-GAAP measure defined by the company; net loss is the most directly comparable GAAP measure.
On the same basis the company reports Adjusted Operating Income of $1,618 million for the half, an Adjusted Operating Margin of 10%, against a GAAP operating loss of $693 million. For the three months ended 30 June 2026 alone, the MD&A says, “we generated operating income of $1.0 billion.”
Update, 27 Oct: what the adjustments leave out. The Wall Street Journal ran the S-1’s adjusted profit under the headline “Anthropic’s ‘Adjusted’ Profit Exposes Wall Street’s Earnings Game.” The S-1 defines Adjusted Operating Income (Loss) as operating loss excluding “(i) stock-based compensation expense, (ii) non-cash charitable contributions, and (iii) the Bartz settlement.”
In the first half of 2026, those exclusions are $2,185 million of stock-based compensation, up from $286 million a year earlier, and $126 million of non-cash charitable contributions. Together they are the $2,311 million that separates the $693 million GAAP operating loss from the $1,618 million of Adjusted Operating Income (our arithmetic). For full-year 2025 the adjusted figure was still a loss of $4,854 million, against a GAAP operating loss of $8,060 million, after excluding the $1,500 million Bartz settlement as “not indicative of ongoing operations.”
The S-1 itself warns that these measures “do not include the impact of certain expenses that are reflected on our consolidated statements of operations” and “should not be viewed in isolation or as a replacement for the most directly comparable measures prepared in accordance with GAAP.”
The Cash Flow
The cash flow statement adds back both valuation lines, $72,388 million and $8,720 million, in reconciling net loss to operating cash flow. Net cash provided by operating activities was $3,929 million in the first half of 2026, against $1,513 million used in the first half of 2025 and $2,637 million used in all of 2025.
Update, 27 Oct: cash after capital spending. The same cash flow statement shows $482 million of purchases of property and equipment in the first half of 2026, against $18 million a year earlier.
Taking that from the $3,929 million of operating cash flow leaves about $3.45 billion for the half, against about $1.53 billion of outflow in the first half of 2025, by our arithmetic. Separately, the S-1 notes put leases signed but not yet started, primarily for compute and infrastructure, at about $321.4 billion at 30 June 2026; we cover those in a follow-up piece.
The two valuation lines together come to $81.1 billion, by our arithmetic, more than the $80.7 billion net loss. Convertible notes payable of $108.6 billion made up about 92% of total liabilities of $117.5 billion at 30 June 2026, also by our arithmetic.
Connecting the Coverage
Our draft-prospectus piece covered The Wall Street Journal’s 20 October report of the $80.7 billion loss and the $72 billion of accounting charges. Our charges piece subtracted the $72 billion and put the remainder at about $8.4 billion on the filed figures; the S-1 shows that remainder is more than covered by the second, $8.8 billion valuation line, with interest income of $1.1 billion exceeding the $693 million operating loss.
Our S-1 piece reported the $16.3 billion of first-half revenue. Our funding piece covered the Amazon rollover notes and the Class N shares issuable on them.
The Structural Read
As we read it, the size of the loss tracks the company’s valuation rather than its spending: the S-1 says that because these instruments are marked to market, increases in its enterprise valuation drive increases in this expense.
As we read it, the Amazon notes are the clearest example in the filing: $6.2 billion of principal carried at $108.6 billion at 30 June 2026, convertible at $2.0928 and $5.0478 a share.
As we read it, Adjusted Net Income is not a cash or GAAP figure: it is the company’s own measure, and it also leaves out $2.2 billion of stock-based compensation, which the cash flow statement adds back as well.
Anthropic, PBC Form S-1, 26 October 2026
“Because these instruments are marked to market, increases in our enterprise valuation drive increases in this expense.”
Three Implications
FOR IPO INVESTORS The S-1 says the company will keep recognising changes in the fair value of its convertible notes until they are converted into equity, repaid, or otherwise settled.
FOR AMAZON The filing lists 1,840,444,962 Class N shares issuable on its notes, subject to a 12% ownership cap that Amazon may waive.
FOR READERS OF THE HEADLINE LOSS The S-1’s own reconciliation separates the $80,748 million net loss from an Adjusted Net Income of $2,671 million for the same half.
The framework warns that in AI lab economics “The accounting metric (gross margin) and the strategic metric (harness density) are anti-correlated by design.”
As we read it, Anthropic’s S-1 adds a second gap between headline and business: a GAAP net loss driven by the valuation of its financing instruments, beside an operating cash inflow. The framework was published in June 2026 and does not discuss this filing.
What Is Not Established
Adjusted Net Income is the company’s own measure and excludes $2.2 billion of stock-based compensation for the half. The fair values are Level 3 measurements, which the S-1 says are “sensitive to changes in the assumptions or methodology used to determine fair value.” The IPO price is blank in this preliminary filing, so the value of the notes at conversion is not known. The filing can be amended before pricing.
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Anthropic’s S-1 reports a net loss of $80,748 million for the first half of 2026, of which $72,388 million is the change in fair value of convertible notes and $8,757 million is other expense, mostly from marking its 2026 Google and Amazon agreements to market. Its operating loss was $693 million, its operating cash flow was $3,929 million and its Adjusted Net Income was $2,671 million.
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A note on sourcing. All figures and quotations, except the Business Engineer Lens quote from The Subsidized AGI Economy (June 2026), are from Anthropic, PBC’s Form S-1 filed with the SEC on 26 October 2026, a preliminary filing; sums and shares labelled as our arithmetic are ours. Adjusted Net Income and Adjusted Operating Income are non-GAAP measures defined by the company. Earlier reports are as covered in our pieces linked above. This is not investment advice. We did not contact Anthropic.
Gennaro Cuofano is a CRO and tech executive who has worked in AI since late 2015, starting with bringing NLP, natural-language generation, voice and chatbot products to the marketing industry. His background is in law and finance: he holds a Master's degree in Law and an International MBA with an emphasis on corporate finance (LUISS Business School and the University of San Diego, 2012), and worked as a financial analyst at a real-estate investment firm in San Diego and as an assistant controller. His work focuses on business model strategy, business engineering and, more broadly, structural analysis: how companies make money, read from their own filings. He created FourWeekMBA and leads research there and at The Business Engineer, his newsletter on AI and business strategy, with over 95,000 subscribers and more than 1,000 published analyses. His writing has also appeared on Entrepreneur (for example, How to Digitize a Family Business in Europe) and HackerNoon. Find him on LinkedIn and Substack. See how we source.
