The Anthropic IPO Is Coming: History Says the Stock Will Do This After It Starts Trading

Just last week, Anthropic announced that it had raised $65 billion in a Series H funding round that valued the company at $965 billion -- making it the world's most valuable start-up. Now, the company's recent confidential S-1 filing is perhaps the clearest signal yet that participants in the artificial intelligence (AI) gold rush are marching toward the public markets.

SpaceX's initial public offering will take place later this month, and AI chipmaker Cerebras (NASDAQ: CBRS) listed a couple of weeks ago. With all of this action underway, smart investors need to weigh the extraordinary promises being made against the sobering lessons from how the hottest IPOs have performed in recent years.

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Why is Anthropic going public?

Anthropic's near-trillion-dollar valuation reflects more than optimism about large language models (LLM). The company's backers are pricing in the belief that Anthropic's Claude models and partnerships with cloud hyperscalers -- namely Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) -- will allow it to be a dominant force in the next era of enterprise software, scientific research, and consumer applications.

The likely proximity of its IPO to those of SpaceX and Cerebras adds an interesting layer of significance. SpaceX is aiming to be the largest IPO in history, targeting a valuation of $1.75 trillion. Meanwhile, Cerebras' recent debut tested investor appetite for makers of specialized AI chip hardware.

Taken together, I think this trifecta of IPOs marks a maturation point for the AI ecosystem. In other words, the venture capital funds that have invested in these start-ups for years are beginning to seek liquidity. Now, retail and institutional investors no longer need to watch these start-ups from the sidelines. The big question, however, is whether the market can price Anthropic correctly once it hits the public exchange.

Image source: Getty Images.

Analyzing hot tech IPOs from recent history

A thorough look at the most hyped technology IPOs in recent years reveals a fairly consistent script. To summarize, such stocks usually surge immediately following their debuts. Their run-ups are fueled by a combination of scarcity, media frenzy, and FOMO-driven participation from retail investors.

Once lock-up periods expire, company insiders, early employees, and venture investors begin to cash out. New supplies of shares flood the market just as the initial bullish narratives begin to come face to face with operational realities. Growth stories must be repeatedly proven with each passing quarter, and lofty valuations leave little room for error.

Palantir Technologies (NASDAQ: PLTR) provides a textbook example. The company's 2020 direct listing opened with enormous enthusiasm. However, after a couple of quarters of mundane growth, Palantir stock spent the next three years trading broadly sideways.

Snowflake (NYSE: SNOW) followed a similar arc. Shares were initially priced at $120, but more than doubled on the first day of trading back in September 2020. Unfortunately, investors who bought near the peak endured a multiyear grind as Snowflake was unable to justify its high valuation multiples amid lumpy growth.

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Fresh off its own listing, Cerebras' stock has already experienced the classic post-IPO compression as the early hype cycle has cooled.

Is the Anthropic IPO a good buy?

Applying the patterns explored above to Anthropic suggests that there is a high-probability outcome from the IPO: an initial pop driven by the novelty of owning stock in the world's most valuable AI start-up, followed by an extended period of valuation consolidation.

Once lock-up agreements expire and the first few quarters of public company scrutiny inevitably arrive, any gaps between management's execution and the market's optimism will almost certainly be magnified. The same dynamics that humbled Palantir and Snowflake will likely manifest for Anthropic, too.

So, is the Anthropic IPO a buy? History says no -- at least not close to its opening day. Investors who chase that euphoria risk learning for themselves a costly lesson that earlier tech IPO buyers learned the hard way. In my view, the smarter approach would be to exercise patience and wait for the post-IPO hype to dissipate. Once early sellers have cleared and the growth narrative has normalized, Anthropic can be better judged on its business fundamentals rather than valuation theater.

Adam Spatacco has positions in Alphabet, Amazon, and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon, Palantir Technologies, and Snowflake. The Motley Fool has a disclosure policy.