Forget SpaceX: This Potential Blockbuster IPO Has Attracted $26 Billion From AI Giants

Will Space Exploration Technologies (NASDAQ:SPCX) end the year with its record as the largest IPO in history still intact? Maybe. Within the next week, we should see yet another blockbuster IPO: That of Anthropic, a leader in the artificial intelligence (AI) industry. Anthropic is reportedly eyeing a market cap of around $1.4 trillion, down from earlier estimates of around $2 trillion.

Valuation considerations aside, Anthropic recently released an updated prospectus that reveals an upcoming $26 billion investment from several major players in the AI industry. Is that a sign that investors should jump at the first opportunity to purchase Anthropic's shares once they go public?

Image source: Getty Images.

A major vote of confidence

Whenever Anthropic goes public, which should happen next week, the company could receive a substantial cash infusion from several of the biggest names in the AI industry. The list includes Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), Nvidia (NASDAQ:NVDA), Advanced Micro Devices (NASDAQ:AMD), Broadcom (NASDAQ:AVGO), Micron (NASDAQ:MU), Microsoft (NASDAQ:MSFT), and Taiwan Semiconductor Manufacturing Company (NYSE:TSM). These seven tech giants have committed to purchase a combined $26 billion in Anthropic's shares in a private placement alongside its IPO at the IPO price. There are several reasons investors interested in purchasing Anthropic's shares shortly after its IPO should care.

First, although the company's revenue has grown rapidly, it remains unprofitable. In the nine months ended Sept. 30, Anthropic's revenue was $33.2 billion, up 1,206% year over year. The company's operating loss shrank to $1.3 billion, significantly better than the $5.2 billion operating loss reported in the prior-year period. Anthropic posted a net loss of $104 billion, worse than the loss of $25 billion recorded in the comparable period of the previous fiscal year.

It's worth pointing out that most of the company's losses were tied to non-cash charges related to the changes in fair value of convertible notes, derivative liabilities, and simple agreements for future equity. Even so, the red ink on the bottom line is real, and Anthropic is planning a massive AI build-out, so it needs all the funds it can get. The $26 billion from AI giants will be helpful.

Second, Anthropic's success could benefit all of these AI leaders in one way or another. For instance, increased demand for its services means growing demand for the infrastructure needed to train the company's AI models, including Nvidia's hardware. Similarly, since Anthropic uses Google Cloud infrastructure (among other cloud providers), Alphabet could also benefit from its success. So, Nvidia, Alphabet, and other AI leaders' decision to invest in Anthropic isn't just great for the soon-to-be public AI leader.

It is also a move that could positively impact the AI industry and benefit the very companies dishing out the cash. And a booming AI market is great for Anthropic as well, so the company might see benefits beyond the immediate cash infusion.

Is the valuation reasonable?

Anthropic had an $81 billion annualized revenue run rate as of October. And judging by the recent quarters' top-line growth rate, we could see the AI leader's revenue continue to expand at a good clip over the next few quarters. If the company goes public at a $1.4 trillion valuation, it would trade at roughly 17.3x annualized revenue.

But if Anthropic's valuation lands at $1 trillion, it would trade at 12.3x annualized sales -- for a company that is growing its revenue as fast as it has, that may not be that unreasonable, assuming revenue growth doesn't drop sharply anytime soon. That's the uncertainty the company faces. And that's what makes the stock somewhat risky, even at a $1 trillion valuation.

The recent SpaceX IPO reminded us that valuation matters. After all, SpaceX has posted excellent financial results since going public, but the stock hasn't gained much, if anything at all, partly because these results, as well as the progress it has made with the business, were already baked into the share price. Something similar could happen to Anthropic. At any rate, investors need not rush to buy the stock. There may be plenty of opportunities long after the IPO.

Prosper Junior Bakiny has positions in Alphabet and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Broadcom, Micron Technology, Microsoft, Nvidia, Space Exploration Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.