Anthropic eyes $1.4 trillion IPO valuation in test of Wall Street's AI fervor

By Echo Wang, Manya Saini and Arasu Kannagi Basil

Nov 10 (Reuters) - Anthropic's blockbuster IPO is set to give the company a valuation of up to $1.4 trillion, slightly short of some investors' expectations amid cooling AI appetite, setting up a defining test of Wall Street's faith in the boom that it helped ignite.

The AI lab best known for its Claude chatbot and some of its investors are aiming to raise up to $64.4 billion in the IPO by selling 825 million shares priced between $70 and $78 apiece.

Anthropic will also raise $26 billion via a separate private placement deal with cornerstone investors, including Alphabet's Google, Nvidia, Advanced Micro Devices.

The company is launching the roadshow for a share sale that is expected to set a benchmark for the sector. At the top of the price range, Anthropic would be valued at about $1.4 trillion on a fully diluted basis, which includes securities such as stock options and restricted stock. On a non-diluted basis, excluding those securities, Anthropic's market value would be about $1 trillion.

"By seeking a valuation close to 20% below 'market expectations', this allows investors to 'bid up' the IPO rather than facing a take-it-or-leave-it scenario like SpaceX took," said Jeff Zell, senior research analyst at IPO Boutique.

Hours before Anthropic filed an updated prospectus on Tuesday, details of its IPO were briefly circulated to investment banks late on Monday shortly before being retracted, according to emails seen by Reuters.

The preliminary terms showed Anthropic's IPO could raise as much as $69.3 billion. But the updated prospectus filed with the US Securities and Exchange Commission contained different terms, with Anthropic setting a lower price range and targeting reduced proceeds.

BIG SPEND CONCERNS

Nvidia joined the deal amid an FBI probe into its CEO Jensen Huang's affair with a Chinese woman alleged to be a spy for Beijing, which has also triggered an internal investigation.

Investors had previously discussed a valuation of as much as $2 trillion, but expectations have since come down given Anthropic's substantial infrastructure commitments and recent volatility in AI-related stocks, with the $1.5 trillion figure viewed as the high end of the range, Reuters previously reported.

"The timing of this IPO likely contributed to the lighter valuation and lighter cash raise. With market volatility persisting in this sector, getting the pricing 'right' is crucial to its long-term success," Zell said.

Investors are also closely watching Anthropic’s IPO for clues about rival OpenAI, which is seeking to raise $30 billion in what is expected to be its final private funding round before a potential IPO early next year.

The second half of the year has brought a reckoning for the AI boom, as investors question whether returns will justify the massive spending and mounting debt costs in an elevated interest-rate environment.

Concerns are also rising over the sustainability of the investment cycle, with questions around circular financing arrangements how quickly companies can turn their AI investments into revenue.

'HARMFUL ACTIONS'

Despite the midterms being widely viewed as a rebuff to a White House which has aggressively supported the AI build-out and opposed regulations, Anthropic adopted President Donald Trump's preferred name for the new technology, "Super Intelligence", in its IPO filing.

Its filing spoke of a vision to "bring forth an age of miracles," even as it warned of existential risks to humanity, laying bare the extraordinary promise and profound uncertainties at the heart of the AI boom.

The prospectus outlined a range of risks facing both the company and the technology, warning that competitors could gain an edge by developing models faster and that advances in AI could outpace Anthropic's ability to put adequate safety and security measures in place.

GROWTH COMES WITH RISKS

Greater oversight and potential regulatory hurdles could complicate the infrastructure buildout underpinning the AI boom.

But Anthropic's growth has so far defied those concerns, propelled by surging demand for its products, particularly its viral Claude models.

Anthropic's run-rate revenue was roughly $81 billion as of October 31, up $10 billion from September 30, according to the IPO filing.

The company has nearly $900 billion in computing commitments with partners including Amazon and Alphabet's Google, highlighting how its rapid growth depends on securing vast amounts of future computing capacity, some of which relies on financing beyond the company's control.

Shares of Anthropic investor Amazon rose 1.2%, outperforming Magnificent Seven peers.

The listing move follows Elon Musk's SpaceX raising $75 billion, at a nearly $1.75 trillion valuation.

Together with investments from cornerstones, which include Broadcom, Micron Technology, Microsoft and TSMC, Anthropic's share offering will raise up to $90.4 billion.

Certain Anthropic board members and entities related to them are set to buy up to $303 million of shares.

Anthropic was last valued at $965 billion in a private funding round. It was founded in 2021 and is led by CEO Dario Amodei.

Goldman Sachs and Morgan Stanley are leading investment banks underwriting the offering. Anthropic shares are expected to trade on the Nasdaq under the symbol "ANT".

(Reporting by Echo Wang in New York and Manya Saini and Arasu Kannagi Basil and Niket Nishant in Bengaluru; additional reporting by Pragyan Kalita in Bengaluru; Editing by Sumeet Chatterjee, Christian Plumb, David Goodman, Jan Harvey and Arun Koyyur)