Why Anthropic's IPO May Have Just Gotten a Whole Lot Riskier
The tech stock may end up going public at a very inopportune time.
Anthropic, the leading artificial intelligence (AI) company, is set to go public in the coming weeks, potentially with a valuation exceeding $2 trillion. This could make it even more expensive than Space Exploration Technologies Corp (SPCX), which was valued at around $1.8 trillion during its IPO in June. Such a high valuation raises concerns, as it indicates that investors are expecting tremendous returns right from the start.
While Anthropic is growing at an astonishing pace, it is currently still unprofitable and surrounded by considerable uncertainty.
Recent market trends have exacerbated these issues, as several high-profile tech companies have experienced sell-offs. The State Street Technology Select Sector SDPR ETF declined by approximately 13% in the past month, reflecting growing market apprehension about the tech sector. Consequently, the prospects of Anthropic achieving such a lofty valuation may be less straightforward than anticipated.
Despite its exceptional growth rate of 1,200% during the first nine months of the year, Anthropic generated a net loss of $104 billion in that period. This loss includes changes in fair value and non-operating items. Consequently, investors may find it more challenging to justify purchasing the stock now, compared to earlier this year, when the spotlight on high-valued tech stocks was less intense.
Even SpaceX, which reached a $2 trillion valuation during its early trading days, has struggled to maintain its early highs, with its stock price reverting back to its IPO levels. This trend is likely to continue with Anthropic, as hype-driven valuations are prone to correcting in the long run, and the company's fundamentals are not robust enough to support such an elevated price.
While Anthropic's IPO may reach a valuation close to $2 trillion, the excitement is likely to fade, and the stock price could plummet significantly. Additionally, the company faces increased competition, which could further impact its performance. Given that Anthropic was already a risky investment before the recent market volatility in the tech sector, it may be unwise to buy it now. Instead, investors would be better served waiting for more favorable market conditions before considering purchasing shares in Anthropic.
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