The Anthropic IPO Is Coming: 3 Nefarious Stats You Need to Know Ahead of What May Be the Largest IPO in Wall Street's History

Source The Motley Fool

Key Points

  • Anthropic is angling to go public in November at a roughly $2 trillion valuation, likely making it the stock market’s largest-ever initial public offering (IPO).

  • Several history-driven statistics suggest retail investors will regret buying into the Anthropic IPO hype.

  • On average, 30 of the hottest tech-driven IPOs over the previous 14 years have endured peak-to-trough year-one drawdowns of 55%.

  • These 10 stocks could mint the next wave of millionaires ›

Earlier this year, Elon Musk's Space Exploration Technologies (NASDAQ:SPCX), better known as SpaceX, rewrote Wall Street's record books with its $1.77 trillion initial public offering (IPO), which raised $85.7 billion, including the underwriters' overallotment. But mere months after SpaceX took its place in history, it's at risk of being knocked off the pedestal by the developer of the Claude large language model (LLM), Anthropic.

According to various reports, Anthropic is targeting a November IPO, with a valuation in the neighborhood of $2 trillion. The roughly $100 billion the company could raise, along with its estimated market cap, would surpass SpaceX's epic IPO in mid-June.

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A New York Stock Exchange floor trader is looking up in bewilderment at a computer monitor.

Image source: Getty Images.

While retail investor buzz for the Anthropic IPO could be off the charts, there are a trio of nefarious stats to know before you consider taking the plunge.

1. Next-big-thing technologies are notorious for bubble-bursting events

To begin with, every game-changing innovation since the advent and proliferation of the internet in the mid-1990s has endured a bubble-bursting event.

Although it's impossible to know ahead of time when the music will stop or what catalyst will pop the bubble in question, these bubble-bursting events share one thing in common: investors overestimating the pace and/or optimization of innovations.

In the case of artificial intelligence (AI), adoption is 100% not an issue. Businesses are spending more on capital expenditures to build-out AI data centers than they have on any preceding innovation. Demand for AI hardware and applications, such as LLMs, has been insatiable.

But it's a different story when it comes to optimizing AI solutions. It took until after the dot-com bubble burst on Wall Street for businesses to optimize their use of the internet to boost sales and profits. History tells us AI should follow a similar path.

2. Wall Street's hottest IPOs usually stumble out of the starting gate

Secondly, Wall Street's hottest IPOs don't have the best track record after they debut.

Before SpaceX went public, the analysts at Truist Financial (NYSE:TFC) published a data set on X (formerly Twitter) that examined the performance of 30 of the most popular tech-driven IPOs since mid-2012 at various time intervals.

While slightly more than half were higher three months after their debuts, they share a common theme: steep year-one drawdowns. On average, Wall Street's hottest tech-focused IPOs endured peak-to-trough drawdowns of 55%. Interestingly, SpaceX has plunged as much as 54% since reaching its all-time high just days after its debut.

The odds are great that retail investor buzz will fade quickly after Anthropic goes public.

A magnifying glass is laid atop a financial newspaper that's enlarging a subhead that reads,

Image source: Getty Images.

3. Anthropic's valuation is a statistical eyesore

Last, but certainly not least, Anthropic's valuation is a statistical eyesore.

History says that companies valued at or above a price-to-sales (P/S) ratio of 30, which are at the forefront of a next-big-thing trend, haven't been able to sustain a trailing 12-month (TTM) P/S ratio above 30 for any extended period.

Despite Anthropic's lightning-fast sales growth, its TTM P/S ratio should be well above 30 when it debuts, as predicted, in November. Once Anthropic's financials come into focus, several weeks after its debut, keeping the wind in the company's sails may prove impossible.

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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Truist Financial. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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