Google and Broadcom: Billions at Stake with Anthropic

Google and Broadcom: Billions at Stake with Anthropic

Google has established a complex financing structure with Broadcom and Morgan Stanley to enable the AI startup Anthropic to access $35 billion worth of Google's proprietary AI chips, known as TPUs.

Since none of the companies involved want the hardware on their books, a special purpose vehicle has been created to purchase the chips using funds from external investors; Broadcom acts as a guarantor, and Anthropic leases the hardware.

To secure the infrastructure and energy needed to operate the chips, Google relies on capabilities from cryptocurrency mining companies. In total, $200 billion worth of contracts depend on Anthropic's ability to increase its revenue.

Google has partnered with Broadcom, Apollo, Blackstone, Morgan Stanley, and several cryptocurrency mining companies to finance the sale of AI chips to Anthropic. The Financial Times describes this as one of the largest infrastructure financing programs in history.

The agreements involve Google's Tensor Processing Units, which the company has developed with Broadcom since 2016. Initially designed for Google's own data centers, the TPUs are now sold to external customers and challenge Nvidia's dominance in the AI processor market. Google sells the chips in "Pods," server racks that connect thousands of TPUs into a single computing system.

No One Wants Chips on Their Own Books

Anthropic needs vast amounts of AI hardware but cannot purchase the chips itself due to a lack of credit rating. Banks are unwilling to lend such large sums to the startup, while the other companies involved also wish to keep the hardware off their balance sheets, according to FT sources. Google is already spending record amounts and does not want to add more pressure to its balance sheet. Broadcom also does not want to tie up its capital in the Google chips it resells.

Morgan Stanley has helped set up a financing vehicle that buys the chips and leases them to Anthropic. External investors, primarily Apollo and Blackstone, provide the funds. The structure will be used for the first time in June when a special purpose vehicle called Compute SPV will purchase about one gigawatt of TPU hardware for $35 billion. This represents approximately one million TPUs, according to the FT. Broadcom provides a guarantee covering about $30 billion of the purchase if Anthropic stops making its lease payments.

The structure now serves as a model for other agreements. The largest deal to date is an April contract for Google to sell an additional 3.5 gigawatts of TPU hardware to Broadcom for Anthropic. Broadcom's financial filings indicate $128 billion in purchase commitments through 2028, and FT sources claim that nearly all of this amount is related to Google's TPUs.

Cryptocurrency Miners Provide the Energy and Data Centers Needed by Google

Financing the chips only solves half the problem, as Google also needs data centers with enough energy to operate them. The company is turning to cryptocurrency miners who have already secured access to large amounts of electricity.

TeraWulf is the first to receive a guarantee from Google, covering a 360-megawatt data center in New York. Morgan Stanley bundles the guarantee into a $3.2 billion construction bond, while Google receives an equity stake in TeraWulf in return.

The same model is now extending to other cryptocurrency miners, including Cipher Digital and Hut 8. Google has supported ten projects with a combined capacity of 2.4 gigawatts so far, according to FT sources.

Google could face liabilities of up to $44 billion if every lease contract defaults, the FT reports. Yet, the company only accounts for $815 million of this liability on its balance sheet, leaving most of the exposure off its books.

Google's Financial Advantage Lowers Costs but Increases Its Exposure

Google's financial backing is already changing the economics of AI infrastructure, according to the FT. Google-backed data center projects borrow at a median interest rate of 7.1%, compared to 9.3% for neo-cloud operators that rely on Nvidia chips. Jefferies analysts describe this gap as a "structural cost of capital disadvantage" for companies in the Nvidia ecosystem.

The arrangement carries significant risks as $200 billion worth of contracts depend on Anthropic's ability to continue making its lease payments. Google also finds itself on both sides of the agreement as an investor in Anthropic and a supplier of its chips.

A previous report from The Information indicates that Anthropic has committed to spending about $200 billion on Google Cloud over five years in exchange for five gigawatts of server capacity. This deal represents over 40% of Google's future committed revenues in the cloud. Along with OpenAI, Anthropic accounts for about half of the $2 trillion in pending cloud orders at Amazon, Microsoft, Google, and Oracle. Both startups are counting on revenue growth of 20 to 30 times by 2029, and the entire structure could collapse if this growth slows or stagnates.