Investors reconsider Anthropic IPO valuation amidst tech market downturn

Anthropic intends to list its Class A shares on the Nasdaq Global Select Market. The current market conditions, highlighted by a significant downturn in tech stocks, are influencing investor sentiment. The Invesco QQQ Trust (NASDAQ:QQQ) closed down 9.55% over one week, contributing to a $2.5 trillion loss in market value for Nasdaq Composite companies on November 5. A broader market decline saw over 50 tech stocks in the S&P Composite 1500 fall by 10% or more following the midterm elections.

This challenging environment poses difficulties for an offering anticipated to raise up to $100 billion, representing the largest IPO on record. Keith Lerner, chief investment officer of Truist Advisory Services, characterized the situation as a “buyers’ strike” in the tech sector.

While no official valuation adjustments have been made, the amended S-1 filing from November 2 retains the original price range and share count, with Goldman Sachs and Morgan Stanley leading a consortium of 22 banks managing the deal. An unnamed investor has floated the $1 trillion figure, while others suggest a potential delay or a smaller offering. Executives and advisors are scheduled to meet in the coming days, and Anthropic has declined to comment.

The planned IPO week of November 16 is now in question, as sources indicate that a roadshow, designed to market the offering to large investors, may not be feasible given the current timeline.

A lower valuation primarily benefits new investors, who often secure discounts in weaker markets. Anthropic’s substantial cash reserves of $146.6 billion as of September 30 alleviate any immediate pressure to price the IPO during the market downturn.

Investors are particularly focused on Anthropic’s October revenue figures, which are currently absent from the amended S-1 filing. The missing data is fueling concerns about a recent slowdown in growth. Third-quarter revenue reached $17.0 billion, a significant increase from $1.4 billion the previous year, but the company also reported an operating loss of $567 million.

Analysts are advising caution regarding IPO allocation and initial trading performance. The company’s growth is acknowledged, but the pricing is being negotiated within a market reassessing AI valuations. A key indicator to watch is the next amended S-1 filing, which, if it includes an October revenue figure demonstrating a recovery in growth, could strengthen the case for the original pricing. Failure to provide this information before the week of November 16 may lead to a postponement.