Google faces exposure risk as Pentagon ultimatum to Anthropic looms
$3bn stake in AI company threatened by Friday deadline to remove military-use safeguards
Alphabet faces growing exposure to a brewing confrontation between the Pentagon and artificial intelligence company Anthropic, in which the technology giant holds a 14% stake valued at more than $3bn.
Defence Secretary Pete Hegseth has issued an ultimatum to Anthropic chief executive Dario Amodei, demanding the company remove safeguards on its Claude AI model by Friday or face removal from the Pentagon's supply chain. The military has threatened to designate Anthropic as a "supply chain risk" or invoke the Defence Production Act, which would compel the company to provide its technology for national security purposes regardless of its own policies.
The standoff threatens Alphabet's substantial investment, which totalled more than $3bn across multiple funding rounds, as well as a separate Google Cloud partnership with Anthropic for tensor processing unit (TPU) services valued in the tens of billions of dollars. Despite the sizeable equity stake, Alphabet holds no voting rights, board seats, or board observer rights in Anthropic under the terms of its investment.
Anthropic has refused to allow its AI technology to be used for mass domestic surveillance of Americans or for fully autonomous weapons systems that operate without human oversight. The Pentagon insists military operations require tools without such limitations and argues it is the military's responsibility to use Anthropic's technology legally.
The ultimatum comes as the Pentagon increasingly turns to alternative AI providers. Elon Musk's xAI has already secured approval to deploy its Grok chatbot on classified military networks, and OpenAI announced earlier this month its participation in GenAI.mil, the Pentagon's secure AI network. All four companies—Anthropic, Google, OpenAI, and xAI—received Pentagon contracts worth up to $200m each in July 2025.
Alphabet's position presents a strategic dilemma. The company reversed its policy on AI military contracts in February 2025, lifting prohibitions on weapons and surveillance work that had been in place since the controversial Project Maven programme in 2018. That policy shift aligned Google more closely with the Pentagon's demands, potentially positioning the company to benefit should Anthropic lose its government contracts.
Anthropic was the first AI company approved for classified military networks, collaborating with partners including Palantir. But its status as the sole AI provider for the military's most sensitive systems has eroded as competitors embraced the Pentagon's "all lawful purposes" standard.
"Military operations require tools without built-in limitations," defence officials have argued, according to the Associated Press. "It is the military's responsibility to use Anthropic's tools legally."
The Friday deadline creates immediate pressure on Anthropic, which must decide whether to compromise its stated ethical principles or risk losing access to the US defence market. The company's Claude AI model is currently the only AI model approved for use in the military's most sensitive classified systems.
For Alphabet, the outcome could materially impact its $3.77tn market capitalisation and its artificial intelligence strategy. The company recorded $10.7bn in net gains on equity securities in the third quarter of 2025, partly due to Anthropic's rising valuation, which reached $61.5bn in March and has continued to climb.
Analysts remain broadly bullish on Alphabet, with 59 buy ratings versus zero sell ratings and an average target price of $360.78, according to market data. But the escalating Pentagon dispute introduces a new variable into the company's AI investment thesis.
If Anthropic refuses to comply by Friday, the Pentagon's threatened actions—terminating contracts, designating the company as a supply chain risk, or invoking the Defence Production Act—could force a rapid reassessment of Anthropic's valuation and commercial prospects. Alphabet's restricted 15% ownership cap means it cannot increase its stake to influence the outcome, leaving its substantial investment exposed to Anthropic's strategic decisions.