Anthropic S-1: Accounting for the $72.4B Convertible Note Charge

Anthropic S-1: Accounting for the $72.4 Billion Convertible Note Charge

Anthropic's S-1 reports an operating loss of $693 million for the six months ended June 30, 2026, and a net loss of $80.7 billion. One line explains most of the gap: a $72.4 billion loss from remeasuring its convertible notes. Anthropic elected the fair value option under ASC 825-10, so each rise in its own valuation raised the notes' carrying amount and ran through earnings as a non-cash charge. The same half year produced $3.9 billion of positive operating cash flow.

Key takeaways

• Remeasuring the convertible notes at fair value accounts for about 90% of the H1 2026 net loss.
• The notes outstanding at June 30, 2026 are Amazon rollover notes with about $6.2 billion of principal, carried at $108.6 billion.
• The notes convert into Class N common stock at the IPO, subject to a 12% ownership cap on Amazon. Any capped balance stays outstanding at fair value after the listing.

What Anthropic filed

Anthropic, PBC publicly filed its registration statement on Form S-1 on October 26, 2026. The company plans to list Class A common stock on the Nasdaq Global Select Market under the symbol "ANT". Our earlier piece covers the confidential stage and what EDGAR showed before today.

Selected lines from the statements of operations (in millions; H1 figures unaudited):

The accounting, step by step

1. The election. Anthropic says it elected the fair value option "to eliminate the accounting complexity that would otherwise result from separately accounting for the liability and equity components of the convertible notes." Under ASC 825-10, an issuer makes that election instrument by instrument when it first recognizes the instrument, and it generally can't revoke it. Anthropic skips the embedded-derivative analysis under ASC 815-15. In return, it remeasures each note at fair value at every reporting date and records the change in earnings. ASC 825-10-45-5 routes any part caused by a change in Anthropic's own credit risk to other comprehensive income instead; the S-1 shows no such amount through June 30, 2026.

2. The valuation. No market quotes these notes, so they fall in Level 3 of the ASC 820 hierarchy. Anthropic uses a scenario-based model that probability-weights the outcomes open to the holder: conversion into preferred or Class N common stock, cash repayment at maturity, and cash settlement at a premium on a change of control. The S-1 attributes the losses to "an increase in our enterprise valuation."

3. The balance. You can rebuild it from the filing. Convertible notes payable stood at $41.7 billion on December 31, 2025. Add the $72.4 billion remeasurement loss, subtract $5.5 billion of notes that converted into Series G-3 and G-4 preferred stock during the half year, and you reach $108.6 billion, the June 30, 2026 balance. At that date, every outstanding note was a non-interest-bearing rollover note issued to Amazon, with $6,203 million of principal: $2,186 million under the 2023 agreement and $4,017 million under the 2024 agreement.

4. The SAFEs in the caption. The income statement line still names SAFEs, yet Anthropic had no SAFEs outstanding at any point in the first half of 2026. Its SAFEs converted into preferred stock in 2023 and 2024.

5. A second fair-value line. Other income (expense), net adds $8.8 billion of expense, mostly a $9.4 billion charge for recognizing and remeasuring note purchase agreements.

6. Conversion. When earlier notes converted into preferred stock, Anthropic recorded the new shares at the note's fair value immediately before conversion. If it follows the same approach at the IPO, it will remeasure the converting notes through earnings one last time and move that carrying amount into equity, with no separate gain or loss on conversion.

Fina worked through the same question against the filing: Fina's cited analysis of Anthropic's convertible note accounting.

Does the charge stop at the IPO?

The conversion prices explain the size of the liability. The 2023 notes convert at $2.0928 per share and the 2024 notes at $5.0478, or at the IPO price if lower. Before the cap, that comes to 1,840,444,962 Class N shares for $6.2 billion of principal.

Amazon's ownership cap decides whether the charge ends. No portion of an Amazon note converts if Amazon would then hold more than 12% of Anthropic's capitalization, unless Amazon waives the cap. The S-1 says any balance that can't convert at the offering stays outstanding and converts, subject to the same cap, at the end of each fiscal quarter after the IPO, at the lowest of the fixed price, the IPO price and the 10-day trailing volume-weighted average price. A balance that never converts gets repaid in cash at maturity.

Any notes left outstanding after listing stay at fair value, and their remeasurement keeps running through earnings in Anthropic's first 10-Qs as a public company.

How Anthropic presents results outside GAAP

Anthropic reports two non-GAAP measures that exclude the charge. Adjusted Net Income (Loss) removes the note remeasurement, stock-based compensation, and certain other items, including mark-to-market instruments. For H1 2026, Anthropic reports Adjusted Net Income of $2.7 billion against the GAAP net loss of $80.7 billion, and Adjusted Operating Income of $1.6 billion against the GAAP operating loss of $693 million.

Regulation S-K Item 10(e) requires the most directly comparable GAAP measure with equal or greater prominence, plus a reconciliation, which the S-1 gives in MD&A. Our guide to non-GAAP rules in 2026 covers the details.

What the next filings must show, and when

• An S-1/A with offering terms. It will add the price range and share count and complete the pro forma capitalization table, which shows the notes converting into Class N common stock.
• Updated financial statements if effectiveness slips. Anthropic checked the non-accelerated filer box, so Rule 3-12 of Regulation S-X gives its June 30 balance sheet 135 days. If the registration statement isn't effective before November 12, 2026, Anthropic must add September 30, 2026 interim statements, including the notes' remeasurement through that date.
• The first 10-Qs as a public company. They will show how much of the Amazon balance converted at the offering and whether a fair value charge continues. Notes still carried at fair value also bring the ASC 820 Level 3 disclosures, including the reconciliation of opening and closing balances. Our ASC 820 disclosure guide lists them.

For the holder's side of these notes, see how Amazon and other investors account for their Anthropic stakes.

Read the full analysis

Fina's cited analysis of Anthropic's convertible note accounting sets out the treatment through conversion, with citations to the S-1, the Codification and SEC rules.