Can the Anthropic IPO Save the AI Rally?
Key Points
Investor sentiment on AI stocks has soured over the last month.
Anthropic is set to go public next Thursday and should take some attention away from the Jensen Huang drama.
If shares of the AI lab jump in their debut, they should fuel a bounce in the broader AI sector.
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AI stocks fell for the second day in a row on Friday as investors continue to assess the fallout from Jensen Huang's sudden resignation as CEO of Nvidia.
More than any other business leader, Huang was at the center of the AI boom, a ubiquitous advocate for the revolutionary technology and a visionary strategist, whose company dominates the market for AI chips with roughly 90% market share of data center GPUs.
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Huang's absence leaves a question mark hanging above not only Nvidia but also the broader AI sector, as Nvidia has become a financial backstop for an array of companies including neoclouds like CoreWeave and research labs like OpenAI. Those relationships and its so-called "circular financing" are expected to face more scrutiny with Huang out of the CEO chair, and Nvidia could scale back its widespread ambitions as it looks to reduce its financial exposure.
Investors looking for another catalyst to shift the narrative away from Huang's absence won't have to wait long. Nvidia reports earnings on Tuesday, which would normally dominate the market calendar for the week, but the bigger news, and potential driver for AI stocks, is Anthropic's (Nasdaq: ANT) IPO.
Image source: Anthropic.
Here comes Anthropic
Anthropic is set to start trading on Thursday, Nov. 19, and it will become the first AI lab to go public, beating rival OpenAI to market.
Anthropic has scaled back its offering, in part a response to increasing investor skepticism about the AI trade, and it's now targeting a valuation of $1.4 trillion, down from an expected $2 trillion earlier in the year.
At that valuation, the stock looks well-priced, especially compared to Space Exploration Technologies, the other blockbuster IPO this year, which soared after its June debut before retracing those gains.
The Claude parent reported run rate revenue of $81 billion for October, meaning it would trade at approximately 17 times sales, which puts it on par with software stocks like Snowflake and Datadog. However, Anthropic is reporting triple-digit revenue growth, an adjusting operating profit, and has established itself as the leading AI lab, which makes it significantly more attractive than the average SaaS stock.
Why AI stocks could jump on the Anthropic IPO
Anthropic's roadshow has begun, and according to Bloomberg, the IPO is already six times oversubscribed, meaning for every share available, there are six buyers for it.
That's a good sign that Anthropic stock will soar when it starts trading, as demand clearly outstrips the limited float of the stock. The company will employ a staggered lockup that will allow directors, officers, and non-founder employees to sell up to 10% of their holdings once the stock starts trading. Others will have to wait 180 days or longer for the initial lockup period to expire.
A surge in Anthropic stock on opening day is likely to cast a halo effect on the broader AI trade, as it will demonstrate both confidence in Anthropic, the leading AI lab, and therefore confidence in the long-term success of AI more broadly, as Anthropic is the best test case yet for AI.
Anthropic could displace Nvidia as the central stock in the AI narrative, as the success of labs like Anthropic and OpenAI will ultimately determine whether AI will be as transformative as investors hope. After all, Anthropic represents the AI product for sale: Claude and its derivatives, like Claude Code. Nvidia is just the "picks-and-shovels" play here. Nvidia dominates the market for those tools, but they're only valuable because investors expect generative AI and other AI iterations to unlock trillions of dollars of value.
When Anthropic goes public, it becomes the most direct vessel for that bet, and if the stock rises, it's likely to pull chip stocks and other AI players higher along with it. We’ll learn more on Thursday.
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Jeremy Bowman has positions in CoreWeave and Nvidia. The Motley Fool has positions in and recommends Datadog, Nvidia, Snowflake, and Space Exploration Technologies. The Motley Fool has a disclosure policy.
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