Heeding the Feedback Loop: A follow-up to my Anthropic Valuation

Valuing Anthropic requires focusing on the primary revenue growth story rather than obsessing over the cost of capital. While many critics argue for higher hurdle rates, historical market data and implied equity risk premiums suggest that a 15% to 20% cost of equity is disconnected from reality, as US equities have not consistently delivered such returns in decades. Finessing the cost of capital often serves as a "receptacle for hopes and fears" rather than a precise analytical tool, leading to distorted business decisions and underinvestment. Instead of inflating discount rates to account for uncertainty, analysts should explicitly model failure risk and maintain consistent assumptions across the company’s lifecycle. Ultimately, valuation serves as an internal tool for decision-making, where the most fragile assumptions—such as market share and compute efficiency—carry far more weight than minor adjustments to the discount rate.