Interactive Brokers Earns Interest on $182 Billion of Its Clients' Idle Cash. Will Anthropic's IPO Drain It?

Interactive Brokers (NASDAQ:IBKR) ended June with $182.4 billion of uninvested client cash, up 27% year over year. Not only did the pile grow, but it was bigger still two months after the quarter closed, reaching $185.6 billion at the end of August. And until clients put that money to work, the automated global broker collects interest on it.

They may soon get a big occasion to put some of it to work. Anthropic's initial public offering (IPO) prospectus could arrive as soon as this week. In late August, The Information reported that the artificial intelligence (AI) company planned to release it just after Labor Day, with a market debut following as soon as the end of this month.

Investors project the Claude maker's valuation could land at about $2 trillion, CNBC has reported. They also expect the offering itself could top the largest on record -- the $85.7 billion SpaceX (NASDAQ:SPCX) raised in its June debut.

Anthropic's timing is a plan, not a scheduled event. There's no public prospectus, no price, and no share count yet.

But I think the setup is worth examining, because the broker just lived through a version of it. What does a huge listing do to this business?

Image source: The Motley Fool.

A cash pile that pays

Interactive Brokers earns money on client cash in a straightforward way. It segregates customer cash as regulators require and invests the majority of that segregated cash in short-term U.S. government securities and related instruments. Clients earn interest on qualifying U.S. dollar balances, and the company keeps a spread for itself: half a percentage point below the benchmark federal funds rate.

At today's scale, net interest income is the company's biggest revenue line. It rose 23% year over year to $1.06 billion in the second quarter, helped by growing customer credit balances and a 67% jump in customer margin loans. That was more than half of the quarter's $1.9 billion of total net revenues. Notably, the growth came from bigger balances. The company's net interest margin narrowed to 1.93% from 2.07% a year earlier as interest rates declined, yet net interest income climbed anyway.

In other words, the cash isn't idle from the broker's perspective. Every uninvested dollar earns the company a little interest, and clients added about $39 billion of those dollars over the past year.

SpaceX's debut didn't drain the pile

If a giant IPO were going to pull client cash out of the business for good, the second quarter was the test. SpaceX went public on June 12, and Interactive Brokers participated directly. "In Europe, we directly offered the SpaceX IPO to eligible U.K. and European retail clients, providing access across multiple countries," said Nancy Stuebe, the company's director of investor relations, on the July earnings call.

The trading side delivered. Commission revenue hit a record $673 million in the second quarter, up 30% year over year and accelerating from 19% growth in the first quarter.

But the cash pile grew anyway. Client equity climbed to $962.8 billion in August, up 35% year over year, and customers traded more too -- daily average revenue trades rose 23%.

And a big reason the cash keeps pace is that new customers keep arriving. Client accounts reached 5.46 million in August, up 35% from a year earlier.

Will Anthropic be a repeat?

Two things would have to happen first. The offering has to arrive at all. Anthropic's June filing was a confidential draft registration statement, and the company has said the proposed offering will depend on market conditions.

Interactive Brokers would also need access to the shares. The company hasn't said anything about distributing Anthropic's offering, and its SpaceX access was limited to eligible retail clients in the U.K. and Europe. I wouldn't assume a repeat until the company announces one.

Still, the second quarter suggests shareholders don't need one. Heavier customer trading can lift commissions, while account growth keeps refilling the interest-earning cash pile.

Ultimately, I view an Anthropic debut as a potential bonus for this business rather than a swing factor. Even at a record $673 million, commissions remain the smaller of the company's two big revenue lines.

The stock, meanwhile, sits near $92 as of this writing, about 6% short of its 52-week high. And it trades at about 29 times what analysts expect it to earn next year -- arguably a rich price for a brokerage, although one attached to 28% net revenue growth and a pretax profit margin that expanded to 77% last quarter.

I wouldn't buy shares because of an IPO on the horizon. The account growth that keeps refilling that cash pile matters a lot more.

Daniel Sparks and his clients do not have positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Interactive Brokers Group. The Motley Fool recommends the following options: long January 2027 $43.75 calls on Interactive Brokers Group and short January 2027 $46.25 calls on Interactive Brokers Group. The Motley Fool has a disclosure policy.