Key Points
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Anthropic is expected to go public soon, but at a much lower valuation than previously projected.
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Due to weakness in the tech sector lately, its valuation may drop as low as $1 trillion.
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The business has been growing fast, but significant competition could make it difficult to stay out of the red.
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Artificial intelligence (AI) company Anthropic is expected to go public this month, but now, amid plenty of uncertainty and bearishness in the tech sector, its valuation is likely to be far lower than previously projected. It’s no longer expected to command a higher valuation than Space Exploration Technologies Corp (NASDAQ:SPCX), which went public at a value of around $1.8 trillion earlier this year.
Previously, Anthropic was expected to shatter that record with a valuation of around $2 trillion. It’s reportedly come down significantly from those levels. If that’s the case, should investors buy the IPO?
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Anthropic’s valuation could be as low as $1 trillion
There’s growing apprehension around the tech sector lately, and Anthropic’s IPO may prove to have unfortunate timing. Now, analysts believe that even a $1.5 trillion valuation may not be attainable, and that Anthropic could dip to a valuation as low as $1 trillion.
At $1 trillion, however, even that puts the company’s valuation in the same ballpark as blue chip stocks such as Walmart, Berkshire Hathaway, and JPMorgan Chase.
Anthropic’s business has been growing fast, but its losses are also massive. In the third quarter, the company reported $17 billion in revenue, which was an increase of more than 1,100% year over year. However, it also posted a net loss of more than $23 billion. While its growth is impressive, the numbers don’t reflect a business that belongs alongside some of the most successful and profitable companies in the world. SpaceX, which turned a profit in its most recent quarter, currently has a market cap of around $2 trillion, as its value has held up reasonably well since it went public in June.
Its valuation may be lower, but Anthropic’s IPO still isn’t worth buying
I don’t think Anthropic’s business is worth a $1 trillion market cap. Competition is fierce, and that could make it difficult for the company to get out of the red. With SpaceX, the business has a wide range of growth opportunities, spanning space, AI, and telecom. Anthropic is not nearly as diversified and is a far riskier investment overall. Even at $1 trillion in market cap, I wouldn’t be tempted to invest, as Anthropic’s valuation could easily fall far lower given the risks and challenges it faces.
There are many other AI stocks that can be better options for investors to consider; Anthropic simply isn’t worth the risk, as it still has a lot to prove.
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JPMorgan Chase is an advertising partner of Motley Fool Money. David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, JPMorgan Chase, Space Exploration Technologies, and Walmart. The Motley Fool has a disclosure policy.
