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One of the most eagerly anticipated IPOs of the year is approaching, with Anthropic expected to make its stock market debut on 16 November. The company behind the Claude AI platform could reportedly seek a valuation of between $1.5trn and $2trn, making this a potentially historic listing. But does it make sense for me to save some cash now so I can buy when it goes public?
The case for buying
For starters, the growth figures are extraordinary. Anthropic reportedly generated $16.8bn in revenue during the third quarter, representing a 45% increase from the previous quarter. It also achieved adjusted profitability during the period, which is another big tick.
What particularly interests me is the company’s exposure to enterprise AI. Claude is increasingly being integrated into corporate workflows. Unlike consumer-focused applications, enterprise customers can generate recurring, high-value revenue streams, making earnings more predictable over time. This is something that I look for when investing in companies.
The company’s partnerships with tech giants like Amazon and Alphabet are another advantage. These relationships provide access to enormous computing resources and established distribution networks. So over time, it should open up more doors to get new clients.
We also can’t ignore the fact that AI adoption still has a long way to go before slowing down. If adoption continues at anything approaching this pace, I think the company could eventually justify a substantial premium valuation.
Some worries
It won’t surprise many to know that my biggest concern is valuation. Even at $1.5trn, investors would be paying an enormous amount for a company operating in an industry where competitive advantages can disappear remarkably quickly.
New models from OpenAI and other emerging competitors could put pressure on pricing, while the costs of developing increasingly sophisticated AI systems remain substantial.
There’s also the issue of cash consumption. Anthropic has committed enormous sums towards future computing infrastructure. As a public company, this will be scrutinised a lot more than when it was private as shareholders are focused more on profits right now.
The IPO
As we saw earlier this year with the SpaceX IPO, investors sometimes become so enthusiastic about a high-profile listing that the opening share price moves well beyond what the underlying fundamentals justify. As a result, it can then spark large volatile price swings.
That means I won’t be rushing to buy Anthropic on the first trading day next month. Like the SpaceX hype, I’m going to wait and see how the first few weeks of trading go before looking to buy.
But ultimately, if the valuation is reasonable and the share price volatility calms down after the initial IPO buzz, I definitely want to own shares in the business. Its enterprise positioning, extraordinary growth and strategic partnerships make it one of the most interesting companies in the entire stock market
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Jon Smith has no positions in the shares mentioned.
This story originally appeared on Motley Fool
