Fair value of financial instruments
The fair values of the financial instruments we measure at fair value on a recurring basis are as follows (in thousands):
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| December 31, 2025 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Cash equivalents: | | | | | | | |
| Money market funds | $ | 452,315 | | | $ | — | | | $ | — | | | $ | 452,315 | |
| Commercial paper | — | | | 286,879 | | | — | | | 286,879 | |
| U.S. treasury securities | 64,934 | | | — | | | — | | | 64,934 | |
| Corporate bonds | — | | | 4,516 | | | — | | | 4,516 | |
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| Marketable securities: | | | | | | | |
| Corporate bonds | — | | | 706,288 | | | — | | | 706,288 | |
| U.S. treasury securities | 374,844 | | | — | | | — | | | 374,844 | |
| Commercial paper | — | | | 253,466 | | | — | | | 253,466 | |
| Certificates of deposit | — | | | 163,213 | | | — | | | 163,213 | |
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| Other assets: | | | | | | | |
| Certificates of deposit | $ | — | | | $ | 6,020 | | | $ | — | | | $ | 6,020 | |
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| December 31, 2024 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Cash equivalents: | | | | | | | |
| Money market funds | $ | 861,824 | | | $ | — | | | $ | — | | | $ | 861,824 | |
| Commercial paper | — | | | 150,456 | | | — | | | 150,456 | |
| Corporate bonds | — | | | 8,304 | | | — | | | 8,304 | |
| Certificates of deposit | — | | | 4,158 | | | — | | | 4,158 | |
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| Marketable securities: | | | | | | | |
| Corporate bonds | — | | | 516,212 | | | — | | | 516,212 | |
| U.S. treasury securities | 425,353 | | | — | | | — | | | 425,353 | |
| Commercial paper | — | | | 260,385 | | | — | | | 260,385 | |
| Certificates of deposit | — | | | 172,021 | | | — | | | 172,021 | |
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| Non-U.S. government and supranational bonds | — | | | 2,438 | | | — | | | 2,438 | |
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| Other assets: | | | | | | | |
| Certificates of deposit | $ | — | | | $ | 4,761 | | | $ | — | | | $ | 4,761 | |
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We classify our marketable securities within Level 1 or Level 2 because we determine their fair values using quoted market prices or alternative pricing sources and models utilizing market observable inputs.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.