Elon Musk Says He Was "Clearly Wrong" About Anthropic's Artificial Intelligence (AI) Models. Here's Why That's Outstanding News for Amazon and Alphabet Investors.

Over the last few years, large language models (LLMs) have burst onto the scene with unprecedented speed. What once felt like science fiction -- chatbots that can reason, write, code, and converse almost like humans -- has become an everyday reality reshaping industries from software development to healthcare. The race to build the most capable systems has drawn billions in capital investment and brought newfound attention to the world's largest technology companies.

Among the frontrunners stand ChatGPT from OpenAI, Claude from Anthropic, Grok from xAI, and Perplexity's search-augmented models. These companies are backed by heavyweight investors: Microsoft has poured enormous resources into OpenAI, Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) have each made substantial commitments to Anthropic, while xAI represents Elon Musk's ambitious push into the field of frontier AI.

The competition is fierce, the stakes are immense, and the questions on everyone's mind are simple yet electric: Which model is actually the best and on what basis should it be judged -- raw intelligence, reliability, speed, or something else? Elon Musk just offered his own pointed answer. And ironically enough, he didn't say Grok!

Image source: The White House.

Giving credit where credit is due

In a recent post on X (formerly Twitter), Musk delivered a striking admission: He says he was wrong about Anthropic and now views the company as the clear current leader in AI. Musk went on to admit that no other lab has released a model that matches the quality of Anthropic's Mythos/Fable system.

While openly praising a competitor may seem counterintuitive, Musk has a history of lending support to rivals. As he made sure to remind his nearly 241 million X followers, Tesla open-sourced its patents and made its Supercharger network available to other electric vehicle (EV) developers.

Just about any public remark by Musk is influential. In this specific instance, it signals that even a competitor is willing to acknowledge superior performance when it appears, rather than dismissing it. In an AI landscape defined by rapid iteration and enormous capital outlays, such candor can easily influence talent flows and partnership decisions.

By highlighting his own history of enabling rivals, Musk appears aligned with the idea that competitive fair play is a choice rather than a weakness. More directly, he declares Anthropic's Mythos/Fable as the most capable model currently available.

Anthropic's success is great news for Amazon and Alphabet

Anthropic's rise carries tangible upside for both Alphabet and Amazon, which have each made meaningful investments in the company. Beyond equity stakes, the relationship runs deeper through infrastructure.

Anthropic relies on custom silicon designed by both hyperscalers -- Amazon's Trainium and Inferentia chips for training and inference workloads, and Google Cloud's Tensor Processing Units (TPUs) for custom workloads. Moreover, Anthropic trains and runs its models across both Amazon Web Services (AWS) and Google Cloud Platform (GCP).

When an AI lab scales its models, it consumes incrementally more compute. This demand benefits the cloud providers supplying the underlying hardware and platform services. In other words, greater adoption of Trainium, Inferentia, and TPUs increases utilization of specialized capacity. This translates into higher cloud revenue and improved operating leverage for AWS and GCP.

Image source: The Motley Fool.

Why Amazon and Alphabet stock both have upside

Amazon first invested in Anthropic in September 2023. Back then, AWS revenue was growing 13% year over year and the segment boasted an operating margin of 30%. Meanwhile, Alphabet initially invested in Anthropic in February 2023. Around this time, GCP was growing 28% annually and had just reached profitability. Today, AWS revenue is growing 28% year over year, and the operating margin has expanded to 38%. Sales from GCP are now accelerating 63% year over year while this division maintains operating margins in excess of 30%.

Despite the visible acceleration in Amazon's and Alphabet's cloud revenues and the expansion of operating profit in those businesses, the compression in forward price-to-earnings (P/E) multiples for both Amazon and Alphabet suggests that the maximum upside from Anthropic is not yet fully reflected in their current stock prices.

GOOGL PE Ratio (Forward) data by YCharts

While current tailwinds from AI-related cloud demand are clearly contributing to results, smart investors realize that they largely capture today's workloads. Anthropic's next-generation models -- such as Mythos 2 -- will almost certainly require more compute than previous generations. This step-change in scale creates layered demand for custom silicon and cloud capacity throughout the AI infrastructure era.

While the accretive impact from Anthropic's existing integrations in AWS and GCP is already helping revenue growth and profit margins, the longer-term trajectory remains largely ahead as successive leaps in model capability and the resulting compute hunger manifest. For investors, this means the most substantial rewards from Anthropic's progress are still to come rather than already priced into Amazon and Alphabet.

Adam Spatacco has positions in Alphabet, Amazon, Microsoft, and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Tesla. The Motley Fool has a disclosure policy.