Can You Invest in Anthropic Before the IPO? Here's the Clear Answer.

On Oct. 26, the artificial intelligence (AI) start-up Anthropic filed its S-1, gearing up for the home stretch toward an initial public offering (IPO). Although there's no set date for when that will happen, the general buzz is that it will be before Thanksgiving and that the stock will trade on the Nasdaq Stock Market under the ticker ANT.

You may be wondering if there's a way to invest early. Let's look at how early investment works and review some investment considerations before Anthropic's official IPO date.

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When retail investors can buy Anthropic stock

One of the most recent examples of a highly anticipated IPO that investors wanted in on early is Space Exploration Technologies (NASDAQ: SPCX). Retail investors were clamoring to get shares, but the simple truth is that the average retail investor cannot invest before an IPO.

Accredited investors, hedge funds, and large institutions are typically the only ones who can invest before a company goes public. But the reason retail investors are so interested is that there is a noticeable difference between what an insider pays early and what a retail investor ultimately pays for a stock at its public debut. For SpaceX, the IPO price for connected insiders was $135. For retail investors, when the stock opened to the public on June 12, the price was $150, and it closed the day at $160.95.

That jump from $150 to $160.95 is a significant 7.3%. However, what triggers the fear of missing out for most retail investors is that news organizations typically focus on gains from the early price. For SpaceX, that closing price of $160.95 on the first day shares were available to the public represented a 19.2% gain from the insider price.

For the general retail investor, the simple answer is that there isn't typically a way to own shares before the public offering. Whenever Anthropic goes public, that's when shares can be bought.

There are, however, a few indirect ways to invest in Anthropic ahead of time, ranging from buying shares of exchange-traded funds (ETFs) that may hold pre-IPO shares to buying shares of other companies with stakes in Anthropic.

The indirect investing route

One ETF that holds pre-IPO Anthropic shares is the KraneShares Public-Private AI & Technology ETF (NASDAQ: AGIX). It holds 17,829 shares, accounting for 2.3% of the ETF's total holdings, making Anthropic a top-10 position by weight. Krane also has shares of other private companies, such as the AI research lab General Intuition and the prediction market Polymarket.

Investing in ETFs doesn't offer the same upside as owning a stock directly, because their holdings are spread across multiple companies. But the benefit is that losses for the ETF may be cushioned by its other positions. As of this writing, during the last 12 months, the ETF's stock performance is about on par with the S&P 500's, with each up a little more than 12%.

The other indirect way to invest is to own shares of companies that have invested in Anthropic, like Amazon and Alphabet. Amazon has invested about $18 billion in Anthropic, with another potential $15 billion available based on certain conditions, and its stake in the company is capped at 12%. Alphabet has invested about $23 billion in the AI start-up, with another $20 billion on the table tied to performance targets, and its ownership stake is capped at 14.9%. As with the KraneShares ETF, the direct upside of investing in Amazon or Alphabet for exposure to Anthropic is more limited, but so is the downside, especially since they are already successful, established tech giants.

Consider this before investing

Investing indirectly in Anthropic can be a route to consider for more risk-averse investors. But there's no need to rush out and make those investments before Anthropic goes public, as it's more important to understand KraneShares, Amazon, and Alphabet as investments.

For other investors, investing directly may be preferable for the upside potential, but it also carries significant downside risk. That makes a direct investment in Anthropic most suitable for those who plan to hold for the long term and aren't trying to capture a quick windfall.

Going back to the SpaceX example, after it opened to the public at $150, the price shot up all the way to $225.64 at one point. But it also experienced a steep decline to $104.83, which may have triggered panic-selling among those hoping for quick gains. A new stock's price can swing wildly, and there's no guarantee that any company going public will be successful. According to research from The Motley Fool, three out of the 10 largest IPOs of all time had negative returns after five years.

Before you invest in Anthropic, it's critical to understand all the risks and potential rewards involved, and to have an intended holding period. In that regard, for any stock, Warren Buffett has some of the best advice: "If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes."

Jack Delaney has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Amazon. The Motley Fool has a disclosure policy.