Anthropic Claims Pentagon Feud Could Cost It Billions | WIRED

Overview

Anthropic Claims Pentagon Feud Could Cost It Billions

Anthropic executives allege that current customers and prospective ones have been demanding new terms and even backing out of negotiations since the US Department of Defense labeled the AI startup a supply-chain risk late last month, according to court papers that also revealed new financial details about the company.

Details

Hundreds of millions of dollars in expected revenue this year from work tied to the Pentagon is already at risk for Anthropic, the company’s chief financial officer, Krishna Rao, wrote in a court filing on Monday. But if the government has its way and pressures a broad range of companies from doing business with the AI startup, regardless of any ties to the military, Anthropic could ultimately lose billions of dollars in sales, he stated. Its all-time sales, since commercializing its technology in 2023, exceed $5 billion, according to Rao.

Anthropic’s revenue exploded as its Claude models began outperforming rivals and showing advanced capabilities in areas such as generating software code. But the company spends heavily on computing infrastructure and remains deeply unprofitable. Rao specified that Anthropic has spent over $10 billion to train and deploy its models.

Anthropic chief commercial officer Paul Smith provided several examples of partners who have privately raised concerns to the AI startup in recent days. He said a financial services customer paused negotiations over a

15 million deal because of the supply-chain label, and two leading financial services companies have refused to close deals valued together at

80 million unless they gain the right to unilaterally cancel their contracts for any reason. A grocery store chain cancelled a sales meeting, citing the supply-chain risk designation, Smith added.

“All have taken steps that reflect deep distrust and a growing fear of associating with Anthropic,” Smith wrote.

The executives’ comments are part of statements from six Anthropic leaders in support of a preliminary order that would allow the San Francisco company to continue doing business with the Department of Defense until lawsuits about the supply-chain risk issue are resolved.

Anthropic has sued the Trump administration in two courts. A lawsuit filed in San Francisco federal court on Monday alleges the government violated the company’s free speech rights. A separate case filed Monday in the federal appeals court in Washington, DC accuses the Defense Department of unfairly discriminating and retaliating against Anthropic.

The company is seeking a hearing as soon as Friday in San Francisco for a temporary reprieve. The legal battle and sales fallout follows a weeks-long dispute between Anthropic and the Pentagon over the potential use of AI technologies for mass domestic surveillance and autonomous lethal weapons. Anthropic contends AI is not yet capable of safely undertaking the tasks, while the Pentagon wants the right to make that judgment on its own.

By law, the supply-chain designation prevents a narrow set of companies that do business with the Pentagon from incorporating Anthropic into their systems. But Defense Secretary Pete Hegseth has cast a wider net. He posted on X late last month that “effective immediately, no contractor, supplier, or partner that does business with the United States military may conduct any commercial activity with Anthropic.”

Rao wrote that the Pentagon reinforced the message by reaching out to several startups about their use of Claude, which he said he learned had happened from speaking with an investor that Anthropic and the smaller companies all share. They “have grown worried and uncertain about their ability to use Claude,” Rao wrote.

The Pentagon declined to comment on the lawsuits and did not immediately respond to a request for comment about Rao’s allegation about the outreach.

Hegseth’s actions toward Anthropic have prompted varying responses from companies. Major cloud providers Microsoft and Amazon have announced they will continue providing Anthropic’s AI tools to customers, except for any work related to the Department of Defense.

Government sales also are under threat. Anthropic expected to rake in over

500 million in annual recurring revenue from the public sector in 2026, but it now estimates that figure to fall by

150 million, Thiyagu Ramasamy, head of public sector for Anthropic, wrote in another court filing.

The revenue hit could keep growing if the Trump administration successfully pressures non-military contractors to ditch Anthropic’s Claude AI, even though they are under no obligation to do so. Smith said federal agencies have told an electronics testing company and a cybersecurity company to stop using Anthropic. “Despite acknowledging that there was no legal basis for the directive—only political pressure—the company stated that it had no choice but to comply,” Smith wrote about one of the cases.

The revenue uncertainty leaves Anthropic’s fundraising efforts in jeopardy, the executives said. The current situation, Rao stated, “risks substantially undermining market confidence and Anthropic’s ability to raise the capital critical to train next-generation models and maintain its position in a very competitive race at the AI frontier.”

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Key Takeaways

Anthropic Claims Pentagon Feud Could Cost It Billions
Anthropic executives allege that current customers and prospective ones have been demanding new terms and even backing out of negotiations since the US Department of Defense labeled the AI startup a supply-chain risk late last month, according to court papers that also revealed new financial details about the company
Hundreds of millions of dollars in expected revenue this year from work tied to the Pentagon is already at risk for Anthropic, the company’s chief financial officer, Krishna Rao, wrote in a court filing on Monday
Anthropic’s revenue exploded as its Claude models began outperforming rivals and showing advanced capabilities in areas such as generating software code
Anthropic chief commercial officer Paul Smith provided several examples of partners who have privately raised concerns to the AI startup in recent days