Key Points
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Anthropic’s IPO is set for Nov. 19.
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The company is aiming for a valuation of $1.4 trillion, down from an earlier whisper number of $2 trillion.
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The broader AI rally hangs in the balance with the Anthropic IPO, so it’s crucial that the debut is well-received.
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Anthropic’s (Nasdaq: ANT) IPO is set for Nov. 19.
The debut of the leading AI lab has been highly anticipated and comes ahead of rival OpenAI’s, which pushed its IPO back to 2027.
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Despite earlier speculation, Anthropic won’t top Space Exploration Technologies’ record set earlier this year when it raised $75 billion in its IPO, which valued the Elon Musk-led company at $1.75 trillion.
Anthropic had purportedly aimed for a valuation of $2 trillion, but after updating its IPO filing, the company will now sell shares at a valuation of $1.4 trillion, aiming to bring in $64.4 billion, in addition to a private placement worth $26 billion from several big tech companies. That $1.4 trillion figure is significantly higher than the $952 billion it was worth in a funding round this spring, but it also represents a significant moderation from the $2 trillion it was said to be aiming for.
So why is Anthropic pumping the brakes ahead of its big day? Let’s take a look at a few of the reasons.
Dario Amodei on stage at an Anthropic event. Image source: Anthropic.
The AI trade is looking wobbly
Timing is crucial for an IPO, and Anthropic may have missed the most attractive period of the IPO window. Over the last month, AI stocks have tumbled, first on concerns that rising interest rates would squeeze the AI infrastructure build-out, and then on fears of a data center crackdown following the midterm elections. Now, Jensen Huang’s departure has injected sudden uncertainty into Nvidia and further clouds the prospects for the AI boom.
SpaceX’s IPO was timed just as AI stocks were peaking. By contrast, chip stocks like Nvidia, Intel, Arm Holdings, and others are down substantially from then.
With enthusiasm for AI stocks having cooled, it makes sense for Anthropic to scale back its valuation target. However, the company is better off going public now than waiting and risking the IPO window closing further.
It needs an opening-day pop
Related to the pressure on the AI sector, Anthropic also needs to price its IPO to ensure that the share price goes up on the first day. If it failed to rise, that could be devastating to the AI trade at this point, and Anthropic is reliant on the AI ecosystem remaining healthy. It needs continued demand growth and an increased supply of chips and data centers in order to justify its valuation.
The company has made more than $500 billion of purchase commitments to support its growth ambitions, and maintaining positive investor sentiment toward its own stock and AI broadly is key to supporting its growth to fund those investments. Share price movements are their own feedback loop, and if Anthropic can achieve an opening-day pop, it could ignite a surge across the AI sector.
Concerns about its growth strategy
Anthropic has reported surging growth this year, but there’s a lot of risk in its business model.
In its S-1, the company disclosed a whopping $895.4 billion of future purchase commitments and lease agreements related to infrastructure and compute.
Many of those agreements are non-cancellable. For Anthropic to be successful, it will have to ramp up its revenue growth and cash flow to pay for those commitments. In an environment where AI investors are already spooked by rising interest rates, it’s not a surprise that they would push back on Anthropic’s plans to spend nearly $1 trillion.
Is the Anthropic IPO a buy?
IPOs typically underperform the market, but Anthropic could be the exception that proves the rule, especially at its lower valuation.
The company reached run rate revenue of $81 billion in October, meaning it trades at just 17 times run rate sales, which is a reasonable valuation for a software stock. Anthropic is also reporting triple-digit revenue growth and an adjusted operating profit, and it’s established itself as the leading AI lab. The fate of the AI boom is now riding on Anthropic more than anyone else.
At that price, the stock looks like an attractive buy, even with the expected IPO volatility. While it’s certainly a high-risk stock, there’s a lot of upside to Anthropic if it fulfills the transformative potential of AI.
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Jeremy Bowman has positions in Arm Holdings and Nvidia. The Motley Fool has positions in and recommends Arm Holdings, Intel, Nvidia, and Space Exploration Technologies. The Motley Fool has a disclosure policy.
