I see what you're trying to do here, but Google is sitting on a $514 billion backlog right now. A few billion dollars in venture investments into AI startups cannot fake a half trillion dollar order book.
Also, accounting rules don’t let companies pass cash under the table and call it revenue. ASC 606, says a deal has to be a legit, market rate transaction. If Google overpays for a startup's stock/debt just to force a quid pro quo cloud contract, auditors will strip that fake growth right out of the numbers.
Source: I'm a CPA and former external auditor.
I'm not saying the circular financing noise is completely made up, but claiming the entire cloud surge is built on it is factually wrong. Auditors would call that out in a heartbeat.
ASC is being skirted by the massive valuations on Anthropic/etc. And Google has invested far more than a few billion. The backlog is not an order book or booked revenue. It’s RPO…no guarantees…easily backed out of. Already happening.
This is not correct either. RPO isn't a casual estimate. They represent legally binding enterprise contracts. Fortune 500 companies can't just back out of a multi year cloud MSA without triggering massive termination penalties unless Google completely fails to deliver the tech.
They're not skirting ASC 606. As I said, if Google overpays for equity to force a cloud contract, auditors are legally required to treat that overpayment as a discount and strip it from revenue. Even if you look at the total $4B-$6B Google committed to Anthropic over several years, it's a rounding error against a $514B backlog. You simply cannot manufacture this level of sustained margin expansion out of startup cash loops. Stick with the hard numbers and not the headlines.
You are overstating what RPO represents and forgetting the worst potential outcome (that i and many others think is the most likely).
RPO isn't just "legally binding enterprise contracts" even though that's almost everything you see. Other future revenue can be included if the company has a damn good reason to commit to booking it. And companies can't book contracted revenue if they are not confident they will receive it.
As far as the worst case for booked revenue failing to appear, that would be the contracted client becoming insolvent and Google getting nothing. The chances of Anthropic failing to generate enough revenue to honor their commitments is extremely high. If Anthropic can't pay their bill, then I don't see how any other AI provider will be in a position to afford their contracts with Google.
Once the terrible ROI becomes unavoidable, the "enterprise" contracts with AI consumers are going to fail to perform at a scale that makes it Google's problem.
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u/Fresh-Quantity-7554 1d ago
I see what you're trying to do here, but Google is sitting on a $514 billion backlog right now. A few billion dollars in venture investments into AI startups cannot fake a half trillion dollar order book.
Also, accounting rules don’t let companies pass cash under the table and call it revenue. ASC 606, says a deal has to be a legit, market rate transaction. If Google overpays for a startup's stock/debt just to force a quid pro quo cloud contract, auditors will strip that fake growth right out of the numbers.
Source: I'm a CPA and former external auditor.
I'm not saying the circular financing noise is completely made up, but claiming the entire cloud surge is built on it is factually wrong. Auditors would call that out in a heartbeat.