OPINION: New Zealand investors may be limited to specified wholesale categories.
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Anthropic's planned IPO has reignited interest in the sector. Photo / Getty Images
There’s nothing like a high-profile sharemarket float to stir investors’ interest.
Anthropic, the company behind Claude, publicly filed its prospectus with US regulators in late October.
It has applied to list on the Nasdaq under the ticker symbol ANT, in what is expected to be one of the biggest market
events of the year.
The timetable and pricing are yet to be confirmed, but we should find out more in the weeks ahead.
There’ll undoubtedly be plenty of interest from New Zealand investors, although it looks like participation will be restricted to specified wholesale investor categories.
Aswath Damodaran covered this in his latest blog post.
Damodaran teaches corporate finance and valuation at the Stern School of Business at New York University (NYU).
Known as the “dean of valuation”, he’s built a reputation for making complicated subjects accessible, and a great feature of his work is how open he is with it.
He publishes his analysis and even shares his Excel spreadsheets, allowing anyone interested to adjust his assumptions and draw their own conclusions.
Any of us can head along to his NYU page, plug some estimates into his model and make up our own minds about what Anthropic might be worth.
Damodaran’s valuation is about US$1.5 trillion ($2.68t by present-day $NZ conversion rate), at the lower end of the expected US$1.5-$2 trillion pricing range media outlets are reporting.
Interestingly, Damodaran has used some optimistic assumptions to get to that level, including annual revenue reaching US$1 trillion by 2036 and an eventual operating margin of 27.5% after regulatory costs.
Those would be impressive achievements, yet they still produce a valuation at the bottom end of the anticipated asking price range.
That’s the challenge, and an unappreciated risk for some investors. Even an enormously successful business can be a disappointing investment if it’s priced to perfection.
Having said that, Damodaran’s valuation is only as good as its inputs, just like any forecast or financial model.
Changing any of his assumptions will shift the company’s estimated value, potentially quite dramatically.
We don’t know how competition will evolve or what maintaining its technological lead will cost.
Having the best offering today doesn’t guarantee Anthropic will maintain pole position. Some customers will be willing to pay more for the most capable AI, while others might choose a cheaper option that does the job well enough.
There’s also the cost of funding growth, with Bloomberg reporting that Anthropic has committed to almost US$900 billion in future spending on computing infrastructure, leases and related arrangements.
These commitments stretch over many years, which means the company needs to generate enough cash to meet those obligations, as well as deliver the profits investors are counting on.
The risks also deserve some attention, which is why the prospectus devotes 94 pages to risk factors.
The float will test the market’s enthusiasm for AI, which has come under pressure in recent weeks.
Its significance extends beyond Anthropic, because so much of the spending on chips and data centres depends on companies like this turning that investment into profits.
SpaceX provides a timely reminder about patience when it comes to new listings, especially those that get a lot of attention.
Its June IPO was priced at US$135 a share. After initially surging to over US$225 within a few days, the shares traded under US$105 about seven weeks later, giving investors who missed the offer an opportunity to buy more cheaply.
Today they’re sitting about US$140, slightly above the original listing price.
Anthropic could follow a completely different path, or it could be similarly volatile.
Listing day is the beginning of a company’s life on the public markets, and it gives investors the opportunity to follow and assess the business.
In an IPO as hot as this one will be, getting an allocation at all would probably feel like a win.
Whether it is or not will depend on how sensibly it’s priced, and whether the vendors, promoters and the investment community are on the money with their assumptions about the future.
Mark Lister is Investment Director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals or risk tolerance. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser.
