Anthropic’s IPO Could Be the Biggest in History. Here’s What SpaceX Taught Us About Buying It.

SpaceX (NASDAQ:SPCX) went public in June at the largest IPO valuation in history, and investors who bought on day one and held are underwater. That's not to say that SpaceX isn't a solid long-term investment, but SpaceX's IPO price action contains some valuable lessons about what often happens when a business everyone wants to own finally becomes available.

AI model giant Anthropic is reportedly aiming to break SpaceX's record. The developer of the Claude family of AI tools could list on public markets as soon as October, at a valuation of $2 trillion or more.

Image source: Getty Images.

To be fair, there's a lot to like about Anthropic's long-term potential. But it's important to take a step back and consider what the SpaceX IPO taught is, and how to apply those lessons to the next mega-IPO.

SpaceX's IPO price action

SpaceX went public at a valuation exceeding $1.7 trillion and a share price of $135. But that's not what most retail investors paid. On day one, SpaceX opened significantly higher than $135 and traded as high as $176.52 during the day.

This was just the beginning of a multi-day rally. A few days after going public, SpaceX peaked at more than $225 per share and, at one point, was even more valuable than Microsoft (NASDAQ:MSFT). Unfortunately, the rally faded fast. The stock lost almost all of its post-IPO rally within a couple of weeks. It traded significantly below its IPO price for several weeks and has since rebounded a bit. But at about $153, most people who bought SpaceX shares when it first went public are currently in the red.

3 important lessons to learn

Of course, not all IPO stocks are the same, and there's absolutely no guarantee Anthropic's shares would follow the same pattern. But there are still some valuable lessons for investors:

First, stocks (even the most popular ones) don't always trade higher than their IPO price. A stock's IPO price is simply what institutional buyers are willing to pay for an allocation. It is largely a function of demand and is not necessarily about the value of the business itself.

Second, supply matters, and lockup calendars are worth paying attention to. Typically, insiders are prohibited from selling shares of an IPO within the first 180 days. SpaceX used a complex and unusual lockup expiration, and shares were certainly under pressure before the first tranche of shares became available to sell.

Third, and most importantly, there's no need to get in right away. Even if you believe that Anthropic will be worth several times its IPO value over the long term. Waiting until the dust settles after the IPO allows you to invest at a price determined by the entire market, not just initial hype and supply/demand dynamics.

Here's what I'm watching

I recently wrote an article about the important numbers I'll be watching when Anthropic's S-1 drops, but here's the quick version:

Revenue quality: Anthropic has a reported annual revenue run rate of about $65 billion, but the audited financials will show actual recognized revenue for full periods, which can differ materially.

Commitments: Anthropic has committed to spending hundreds of billions of dollars (that it doesn't have yet) with hyperscalers and chipmakers. These are fixed obligations, and we'll know exactly how large the total is when the S-1 hits.

Customer concentration: How much of Anthropic's enterprise revenue is concentrated among its largest customers, especially those that are also investors in the business (most hyperscalers are).

The bottom line

The point here is not that mega-IPOs like SpaceX and Anthropic are bad investments. The first few days they trade publicly aren't always the best time to buy for a long-term hold, as the price is largely set by demand and hype rather than business fundamentals. Using the S-1 to form an actual valuation estimate and waiting until the initial hype dies down before deciding whether to buy is often a smart approach.

Matt Frankel, CFP® has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.